EUROS
EIB PACKAGE SUPERCHARGES SSA
VIRUS RESPONSELeading public sector borrowers are
following the World Bank Group’s lead in
OFFERINGûlNANCINGûPACKAGESûINûRESPONSEûTOû
THEûCORONAVIRUSûCRISIS
Although the primary market shutdown
has limited how much new funding they
can source from capital markets,
institutions led by the EUROPEAN INVESTMENT
BANK and EUROPEAN BANK FOR RECONSTRUCTION
AND DEVELOPMENTûHAVEûRECENTLYûANNOUNCEDû
INITIATIVES
In addition, the EUROPEAN STABILITY
MECHANISMûSAIDûONû-ARCHûûTHATûINûLIGHTûOFûAû
REQUESTûBYûTHEû%UROGROUPûlNANCEûMINISTERS û
it would consider how it could contribute to
supporting the economies of the euro
member states.
-OREOVER ûKFWûWILLûSERVEûASûTHEûMAINû
CONDUITûFORûAû'ERMANûGOVERNMENTûINITIATIVEû
TOûPROVIDEûADDITIONALûLIQUIDITYûTOûCOMPANIES
EIB took the lead among SSA responses to
THEûVIRUSûCRISIS
The Luxembourg-headquartered
supranational announced a plan to mobilise
up to €40bn – notably more than the
53BNûOFûhFAST
TRACKvûlNANCINGûTHATûTHEû
World Bank Group announced at the start of
the month. The World Bank Group’s
package includes US$4bn which is a
‘”reprioritisation” of the Washington
institution’s current portfolio or from
existing facilities.
-OREOVER ûTHEû%)"ûISûCALLINGûFORûANûEVENû
LARGERûVOLUMEûOFûGUARANTEESûFROMû%5û
member states.
4HEûõBNûPACKAGEûnûTOûBEûDELIVEREDûhINû
partnership with national promotional
banks” – will comprise bridging loans, credit
HOLIDAYSûANDûhOTHERûMEASURESûTOûALLEVIATEû
liquidity and working capital constraints for
SMEs and mid-caps”.
It will include up to €20bn of bank
guarantees, up to €10bn of liquidity lines to
banks to ensure additional working capital
support for SMEs and mid-caps and another
up to €10bn of asset-backed securities
purchases to allow banks to transfer risk on
portfolios of SME loans.
The supranational has particularly
HIGHLIGHTEDûTHEûVIRUSSûIMPACTûONû)RELAND
“Detailed discussions with the Irish
GOVERNMENT ûTHEû3"#)û;3TRATEGICû"ANKINGû
Corporation of Ireland] and other
stakeholders are taking place to ensure that
this package of new measures to strengthen
RESILIENCEûTOûTHEûVIRUSûSHUTDOWNûCANûRAPIDLYû
SUPPORTûSECTORSûINû)RELANDûMOSTûVULNERABLEû
TOûTHISûUNPRECEDENTEDûSHOCK vûSAIDû%)"ûVICE
president Andrew McDowell.26 International Financing Review March 21 2020To execute or not execute:
SSAs in times of coronavirus
SSA Bankers divided over issuance strategiesPublic sector issuers willing to pay
abnormally high new issue premiums were
rewarded with large order books in the
euro market last week but conditions are
treacherous as L-Bank showed after it was
forced to pull a trade.
In a week where almost every single day
brought a new rescue package from a global
central banks as they tried to shore up global
financial markets gripped by coronavirus-
related panic, very little in the way of primary
issuance had been expected.
But three issuers decided to step in: LAND
NRW and LAND HESSEN in the euro market and
German agency LANDESKREDITBANK BADEN-
WUERTTEMBERG (L-Bank) in US dollars.
But it was not to be for the German agency,
which was forced to pull its deal after failing to
attract enough demand.
Even before the transaction was pulled, it
had drawn criticism from market participants.
“There’s a time and a place to be cute when
it comes to issuing but in a market that’s been
trading like it has, it doesn’t make any sense,” a
banker said.
“It’s adding more uncertainty when there’s
already enough out there. We’ve seen swap
spreads moving by 10bp in just one day and
there are huge dislocations in the market. To
do this half auction, half syndication wasn’t the
right thing to do.”
L-Bank mandated BMO and JP Morgan for
a two-year fixed rate note on Thursday and
invited investors to place bids at a mid-swaps
spread in 1bp increments with the final reoffer
spread to be set at the highest spread that
cleared the final size.
L-Bank said it reserved the right to refrain
from allocating orders that weren’t market-
compliant or to cancel the trade as a whole in
case of adverse market or trade conditions.
On Friday an estimated range of 20bp-
30bp over mid-swaps was given but hours
later, a message went out saying the deal was
postponed as there only were US$800m of
orders for a US$1bn trade.
“I have no idea what they were trying to do,”
another banker said. “They always say that they
don’t need funding and have access to ECB
liquidity so why come now when the market is
so stressed, especially in US dollars which is
not their domestic market.”
JP Morgan declined to comment. BMO
and L-Bank did not immediately respond to a
request for comment.GROWING DIVIDE
The transaction highlights a growing divide
between SSA bankers that think issuers should
come to market now or those who counsel it is
better to wait until conditions settle.
Land NRW and Land Hessen both paid sky-
high premiums to get their taps away.
Lead manager JP Morgan priced a €1.3bn
benchmark tap of NRW’s €1.7bn 0.2% April
2023s at 15bp over mid-swaps, conceding a
substantial new issue premium that one banker
put as high as 15bp.
The premium and maturity choice paid off.
Books closed north of €2.3bn in under two hours,
with around 25 participating accounts.
It was a similar dynamic for Hessen, which priced
a €1.75bn tap of its March 2025 at 18bp over mid-
swaps, 2bp tighter than guidance but still offered a
generous mid-double-digit premium.
Barclays, DekaBank, Deutsche Bank, Natixis
and UniCredit initially marketed a €250m
minimum tap but books of more than €2.2bn
allowed for the much bigger size.
“I guess if you’re a fixed-rate issuer, it’s not a
bad time to come,” the first banker said.
“But still, I think the two laender deals were too
cheap. Yes, the market needs to reprice, and primary
needs to show the price, but paying 15bp new issue
premium after the ECB package is too generous.”
The ECB launched a €750bn emergency bond
purchase scheme in a bid to stop a virus-induced
financial rout from shredding the eurozone’s
economy, triggering large moves in European
bond markets.
“There’s a fine balance to be struck,” the
banker said. “New issue concessions are needed
but issuers shouldn’t panic and keep a cool
head. The concessions need to be bigger but
we shouldn’t go to the other extreme. I think we
need to see how the market digests what the
central banks have been doing.”
Still, the German laender could soon find
themselves with much bigger funding needs.
NRW’s €15bn funding target may be
upsized to €25bn, the state said on Thursday,
once it receives parliamentary approval for a
coronavirus-related fiscal stimulus package.
How the market copes remains to be seen and
while conditions appeared a little less volatile,
many remain concerned.
“I’m not very optimistic,” a DCM banker said.
“Deals are coming but the premiums we’re
seeing are big. There’s very little liquidity in the
market; I don’t think it’s functioning properly.”
Helene Durand6 IFR Bonds 2325 p 23 - 45 .indd 26 20 / 03 / 2020 19 : 59 : 39