The European Investment Bank reinforced its reputation as one of the capital market's most innovative borrowers through its first bond in Slovenian tolar in April.
The Tr4 billion (E17 million), 10-year bond is the longest dated Slovenian tolar deal in the international markets. The deal was placed on the eve of Slovenia's accession to the EU on May 1, when it became a shareholder of the EIB. The country is an active borrower from the EIB, with total loans of nearly E1.4 billion (at the time of the bond), covering investments in motorways, railways, telecommunications and SME financing.
The issue represents a continuation of EIB's policy of developing capital markets in new EU member states. This commitment to smaller markets allows the EIB to offer high quality and innovative bonds to fixed-income investors seeking alternatives, according to Barbara Bargagli-Petrucci, head of the capital markets division at the bank.
“As a AAA-rated issuer, EIB offers investors a highly secure means of diversification,” she says. “As the first supranational issuer in Slovenian tolar, the EIB is adding to the range of quality issuers available to investors in SIT bonds.”
David Hinsley, director at Deutsche Bank, which lead managed the transaction, says that investors had been showing interest in Slovenia earlier in the year because its local currency bonds were yielding relatively more than other EU accession countries. The problem for international investors was that they couldn't access the local market; they could only access Slovenian debt through the swap market. “The main question was: how do we structure something that people can invest in and that also provides decent yield pick-up?” says Hinsley.
One of Deutsche's biggest strengths was that it had just built a state-of-the-art OTC platform that would facilitate swap transactions in accession country currencies including the tolar. “The key to getting this trade done, from my perspective, was the execution support from Deutsche OTC,” says Hinsley. “Our swap transaction capabilities were key to opening this market.”
Two types of investor participated – institutional investors (both international and local) and private banks. The 10-year maturity proved particularly attractive for local pension funds and insurers looking to match their assets with their liabilities. One of the problems of the Slovenian bond market is that most of the government's debt is short-dated. Convergence funds – accounts that buy bonds in euro convergence currencies – were also active buyers.
“The EIB is a well-recognized name,” says Hinsley. “It's very difficult to be innovative with an unknown name in these markets.”
Deutsche has a well-established relationship with the EIB. In the past it has arranged deals in Polish zloty, Hungarian forint and Czech koruna for the bank. The Luxembourg-based bank is a pioneer in emerging markets and earlier this year launched its first Maltese liri issue. It has also issued a synthetic Turkish lira transaction this year.
Issuer: European Investment Bank
Date of launch: April 20, 2004
Amount: Tr4 billion (E17 million)
Maturity: 10 years
Coupon: 4.75%
Ratings: Aaa (Moody’s); AAA (S&P); AAA (Fitch)
Lead manager: Deutsche Bank