The European Investment Bank became the first supranational agency to issue a 30-year bond in euros in May, double the length of its yield curve.
After a tough period for the bond market, the issue capitalized on massive demand for pension funds and life assurance companies seeking to fulfil stricter requirements relating to their assets. As a result, the order book swelled to k11 billion, almost four times the stipulated minimum deal size of k3 billion. The issue was subsequently increased to k5 billion.
“The real money investors were always there, but there were a number of things that accelerated it a little bit,” notes Carlos Ferreira da Silva, head of euro funding at the EIB.
The deal attracted new buyers to the EIB, according to Ferreira da Silva, and also encouraged existing EIB investors to take bigger volumes than previously. Asset managers took 27% of the bonds, with banks accounting for 23% and insurance companies taking 12%. “Building our investor base is an on-going preoccupation”, says Ferreira da Silva.
The demand was sparked by expectations of new government rules that would mandate funds to hold more stable portfolios with higher fixed-income components. A number of sovereigns had previously sold 30-year debt.
Selling the longer-dated security wasn’t essential for the EIB’s funding requirements, but the strength of the notes’ performance has reflected favourably across the spectrum of the bank’s traded debt.
“It has been a fantastic performance,” notes PJ Bye, director of the public sector debt syndicate at HSBC. The deal has helped “richen up EIB’s curve”, he says. HSBC, Barclays Capital, BNP Paribas and Morgan Stanley lead-managed the issue.
Despite the success of the deal, the EIB has no plans to repeat the experiment in the near future. “It is not on our agenda to do 30 years; we have achieved what we wanted, to extend the curve,” says Ferreira da Silva. Besides, “we don’t really need to go back to the market,” he adds.
Issuer: European Investment Bank
Amount: c5 billion
Date of launch: May 2005
Maturity: 30 years
Coupon: 4%
Lead managers: HSBC, Barclays Capital, BNP Paribas and Morgan Stanley