Sun. Jan 29th, 2023
Brussels, 24 January 2023

The European Commission today raised €5 billion in its first syndicated transaction for 2023, via a tap of its 30-year bond due on 4 March 2053. The transaction was the first syndication under the EU’s unified funding approach that the Commission introduced as its main funding method as of January 2023. Under this approach, the Commission – on behalf of the EU – is issuing single branded “EU-Bonds” rather than separately labelled bonds for individual programmes.

The transaction was met with a strong interest by investors across Europe and the world. It was more than 10 times oversubscribed, with bids exceeding €51 billion.

The funds raised via today’s transaction will be used to finance the EU priorities, and more concretely the two main programmes which currently benefit from funding via borrowing – the NextGenerationEU recovery programme and the Macro-Financial Assistance + programme for Ukraine.

With today’s transaction, the Commission has raised nearly €10 billion out of its €80 billion funding target for the first half of 2023. This includes €4.68 billion raised earlier in January via an EU-Bonds auction. Out of the €80 billion funding target, some €70 billion will be directed to NextGenerationEU, and around €10 billion, for Ukraine.

A detailed overview of the planned transactions for the first half of 2023 is available in the EU funding plan.

Background

The European Commission is borrowing on international capital markets on behalf of the European Union and disbursing the funds to Member States and third countries under various borrowing programmes.

Its largest programme is NextGenerationEU, of up to around €800 billion, which seeks to support Europe’s recovery from the coronavirus pandemic through investments in sustainability, digital solutions and resilience. To date around €142 billion has already been disbursed to EU countries under the Recovery and Resilience Facility. Further support has been provided to other EU programmes benefitting from NextGenerationEU funding.

The Macro-Financial Assistance + programme of €18 billion is providing stable and predictable support to Ukraine throughout 2023. The European Commission – on behalf of the EU – already disbursed the first €3 billion under the programme on 17 January 2023. This programme follows the disbursement of €7.2 billion by the Commission in emergency MFA loans to Ukraine in 2022. Prior to that, the EU had provided over €5 billion to Ukraine through five MFA programmes since 2014.

The unified funding approach to borrowing allows the instruments developed for NextGenerationEU to be used in the same way for other lending programmes. On that basis, EU programmes financed via borrowing can be funded in a flexible manner, relying on the proceeds of a single scheme of EU-Bills and EU-Bonds transactions. This approach is also expected to make EU securities more fungible and liquid.

To further boost the liquidity of EU-Bonds, the Commission is preparing a framework for providing investors with pricing quotes on EU securities, and is starting to build a repo facility to support market participants in trading its bonds, which will be implemented by early 2024.

Today’s bond syndication

The 30-year tap carries a coupon of 3% and came at a re-offer yield of 3.132% equivalent to a price of 97.429. The spread to mid-swap is +86 bps, which is equivalent to +97.7 bps over the 30-year Bund, +20.1bps over the 30-year OAT and -48.8 bps.

The final order book was of over €51 billion.

The joint lead managers of this transaction were BNP Paribas, J.P. Morgan, NatWest Markets, Nomura, and UniCredit.

Quote
Source – EU Commission

 

 

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