Euromoney received votes from 1,107 investors nominating the best borrowers in the international debt capital markets, a ranking traditionally dominated by the highest-quality sovereign borrowers, supranationals and agencies and frequent corporate issuers. The biggest riser in the ranking this year, up to 11th position from 33rd last year, is the European Financial Stability Facility (EFSF), which funds the debt issued to bail out Greece, Ireland and Portugal.
In its three years of existence, the EFSF has established its name among institutional investors in Europe and Asia with a programme exclusively of large benchmark issues in euros that have been regularly tapped.
In April, in the aftermath of the Cyprus bailout, it executed the largest ever supranational or agency deal, a five-year bond eventually priced at 9 basis points over mid-swaps that attracted €14 billion of orders and was eventually closed at €8 billion.
 |
| Christophe Frankel, chief financial officer and deputy chief executive of EFSF |
With core European sovereign bonds bid up after Cyprus, including French debt, against which the EFSF is often benchmarked, the spread looked appealing. “It very quickly became apparent to us, in early feedback from a wide range of big and small investors, mainly in Europe but also outside, that the deal was in very good shape,” says Christophe Frankel, chief financial officer and deputy chief executive of EFSF. “We then just had to monitor the size, so as not to challenge the secondary market, placing some with buy-and-hold accounts and some with holders promising more liquidity. It was a big success. It showed what good shape the market was in and that has continued through the second quarter.” With €58 billion to issue in 2013, EFSF decided in the aftermath to increase to €20 billion from €16.5 billion the amount it would do in the second quarter. The bailout of Cyprus, one of the guarantors of EFSF, has made life complicated for the borrower. It can now no longer tap earlier issues, as it frequently has, since Cyprus has now stepped out as a guarantor. That reduces its flexibility and means the EFSF must rely purely on new benchmarks until it can eventually tap those.
Bankers were quick to point out that even despite the demand for this record-sized five-year deal, the borrower has yet to show in 2013 that it could attract such strong interest for longer-dated debt. “In US dollars, there has been only piecemeal demand for SSA names beyond five years, and with greater price sensitivity than expected, which has meant most of the US dollar trades beyond five years have been disappointing this year,” says John Lee-Tin, SSA banker at JPMorgan. “In euros, 10 years is the real benchmark maturity, and interest has been thinner than usual in this maturity over the last year, but Finland’s €4 billion 10-year and EFSF’s recent €5 billion 10-year provide some hope that this maturity can return to its stature.”
In May the EFSF first tapped a seven-year issue and then achieved a 10-year benchmark deal. “It shows how positive markets are that Spain has done a 10-year deal and Italy a 30-year this week,” Frankel told Euromoney as the deal priced. “With yields so low, investors are looking to extend duration, and we quickly attracted a €6 billion book at 32bp over mid-swaps. It’s an important signal to execute a 10-year deal.”
EFSF will continue to roll over large volumes of funding for some years to come, while its successor, the European Stability Mechanism, which has been issuing short-term bills since the start of the year, starts to issue new bonds for future bailouts later in 2013. Will EFSF’s strategy change, perhaps to encompass more targeted, smaller issues and different currencies?
Frankel says: “For now, our choice is to continue with benchmark issues, but this strategy is constantly being monitored because our task is to provide our client borrower countries with the best cost of funding. So we do consider whether we might one day turn to doing private placement deals and/or issue in other currencies.”
EFSF has worked hard to build a non-eurozone investor following. Frankel says: “There is always more work to do. There are still some investors who regard our guarantee structure as rather complex, and we continue to try to convince them about it. We also know that non-eurozone investors have much larger dollar portfolios than euro portfolios and that if we were to issue in dollars, we could address ourselves to a much bigger investor universe. So that remains a strategic question for us.”
