Rating: Aaa/AAA/AAA
Amount: €500m global
Maturity: 10 January 2050
Issue/reoffer price: 98.042
Coupon: 0.25%
Spread at reoffer: mid-swaps plus 7bp; 38.1bp over the August 2048 Bund
Launched: Wednesday, October 2
Payment date: October 10
Joint books: BNP Paribas, Deutsche Bank, Goldman Sachs
Borrower’s comment:
It’s part of our overall strategy to extend the duration of our portfolio, and euros is very useful for that because it’s unmatched for providing duration.
We have some upcoming disbursements in euros and, although our balance sheet is in dollars, we try to raise money for euro loans through direct euro issuance.
The exact tenor is driven by investor demand. We came back from a roadshow in Europe having spoken to a lot of investors who have not adjusted their portfolio guidelines to allow them to buy negative yields, so extending our duration also helped meet that demand.
We were surprised by the diversity of the book. Getting 30 investors in 30 year paper that is paying just over 31bp is quite impressive. We didn’t have much of a size expectation. We would have been happy with €300m, but the book was very high quality and we sized the transaction accordingly. Two-thirds of the investors came in after we set size, although some had technical issues that prevented them from participating.
Despite the rally in the market, the bond is still trading roughly flat to reoffer.
It’s always a challenge coming up with a price for a maturity with no reference points on our curve. We took the feedback from investors and from banks as well. Ultimately, it’s more an art than a science but we think the pricing is fair and the fact that two-thirds of the investors came in after it was set suggests they agreed.
We do welcome feedback from investors and banks. In this case, we’re very pleased with the transaction. It’s almost double the length of our previous longest benchmark and to get 30 investors, including some new ones that had never bought World Bank paper, is a great result.
We’re also the first non-European supranational to do a benchmark in this maturity.
Bookrunners’ comment:
It’s the longest ever euro benchmark by a non-European supranational.
They’ve been looking at extending their duration, but they were also realistic as a result of the tough maturity. So the ambition was only a €500m size, which is in line with what they target for euro benchmarks longer than 10 years. We printed €500m so the objective was filled.
OATs are trading cheap in the long end, so funnily enough there wasn’t a huge amount of French accounts in the book.
The price discovery was difficult and we didn’t mark a fair value. EIB’s 48s were trading at plus 3bp but a new line would come wider than that.
Geographical distribution
Europe 96%
Asia 4%
Distribution by investor type
Asset managers/insurance/pension funds 90%
Central banks/official institutions 6%
Banks/bank treasuries/corporates 4%
Market appraisal:
“…looked very tight. We saw EIB’s 30 years bid at plus 5bp, but that’s bought by QE. Even with a new EIB one, we’d expect to offer more than 2bp premium. The last EIB 15 year offered 6bp premium. It’s unfortunate because the long end is in good shape.”
“…not exactly a smashing transaction. There was just over €400m before the last update and then no book size. I suspect it was lower. The problem was the price. It’s quite expensive compared to OATs — around 25bp through, and there’s an auction of long end France paper tomorrow, so why would you buy this expensive, illiquid, non-PSPP eligible deal?”
“…I was disappointed. At plus 7bp, I thought it was going to be a decent trade. Long end stuff is either a hit or miss.”
“…a new EIB 50 year would come at plus 4bp, so it’s about 3bp off the back of EIB and that’s super fair. But investors in this part of the curve are more yield driven.”
