The French agency’s second public deal of the year attracted unprecedented levels of demand, with total orders topping €3bn and more than 100 investors participating in the final book. Bank of America Merrill Lynch, Citi, Crédit Agricole and Natixis acted as joint bookrunners.
“We were surprised by the extent of demand,” said Bokar Chérif, head of funding and capital markets at AFD. “We had very good indications of interest on Tuesday so we were expecting a good transaction but we didn't expect quite such a good response.
“It was probably the strongest book we've seen in the history of our programme.”
Demand was so strong that the French borrower was able to tighten pricing by 3bp from initial thoughts of 20bp, released on Tuesday afternoon.
Official guidance of 19bp area over interpolated OATs was quickly revised to 18bp plus or minus 1bp after books opened on Wednesday morning and the deal priced at the tight end of the range at 17bp.
That equated to a new issue premium of just 2bp, based on a pre-announcement price of 15bp over OATs for AFD’s May 2026s, according to a banker on the deal.
The strength of demand encouraged AFD to size the deal at €1.5bn, at the top end of the authorized range of €1bn-€1.5bn.
“Their benchmark size is usually €1bn but given the size of the book and the tight pricing on offer they decided to go for the larger size,” said the banker. “That was fully supported by investors. There was absolutely no sensitivity in the book.”
Chérif noted that the number of investors in the book was significantly above levels previously achieved by AFD. “Usually we have between 40 and 60 investors in the book for our deals,” he said. “This time we had around 100, so there were a lot of new faces.”
Domestic French buyers drove the deal, accounting for 43% of final allocations, but other European jurisdictions were also well represented. In addition, Asian investors took 15% of the deal.
By investor type, the breakdown was asset managers 39%, banks and private banks 33%, central banks and official institutions 19%, insurance and pension funds 8%, and other 1%.
Lead managers attributed the deal’s success to a combination of the lack of recent supply from the sector and the relatively attractive yield on offer. The transaction priced to yield 0.343%.
“We have had very limited issuance since the start of June, and what there has been has mostly come from German issuers or supranationals such as the European Stability Mechanism,” said one.
“This deal offered a significant yield pick-up to that available from those borrowers and in the context of a very low overall yield environment that really matters to investors.”
AFD’s status as an infrequent borrower also helped boost demand, the banker added. The issuer’s only other benchmark outing this year was a €1bn five year in early February.
“You had a combination of a well established, rare issuer in a maturity which is not too long for treasury accounts, asset managers or central banks,” the banker said. “That concentrates a lot of demand in the 10 year space.”
Chérif noted that the borrower had flexibility on the tenor of the transaction. “We had a range of 10 years to 20 years, depending on market conditions,” he said.
He added, however, that the serendipitous timing of the deal was “really more luck than anything else”. “We usually issue our long-term euro transaction around June,” he said. “This year we had to postpone it for internal reasons and due to the vote in Britain, so this was the first real opportunity we had to come to market.”
A syndicate official on the deal noted that the choice of Wednesday for execution was driven by a desire to avoid clashing with ESM’s €5bn euro market reopener.
“We didn’t feel it was necessary to go head to head with them,” said the banker. “We had the impression that the pipeline was relatively limited this week and the market was quite constructive, so we decided not to take the risk of coming out at the same time as ESM.”
The deal takes AFD’s total funding for the year so far to just over €3bn, out of a target of €5.5bn-€6bn.
Chérif said another benchmark outing before the summer was a possibility. “We might look at dollars next,” he said. “We have done a private placement in the currency this year but no benchmark, and our commitment to the market is to come at least once a year.”
Overall, however, bankers said supply was likely remain constrained following this week’s public holidays in Europe. “By next week, we will be getting very close to the summer break,” said one. “If an issuer hasn’t already come to market I can’t see why they would do so next week.
“I don’t think there’s much of a pipeline out there.”
