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Capital Markets

Inflation bonds: Veolia pushes eurozone corporate linkers

Investors may need more convincing if the inflation-linked market is to take off

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Sylvain de Forges, who created European inflation-linked government bonds during his time as chief executive of Agence France Trésor, is trying to do the same for the corporate market. The question now is, will other non-government borrowers follow suit?

Veolia Environnement, where de Forges is now director of financial operations, opened the books on its €600 million 10-year bond indexed to European inflation on June 6 and closed them two days later. The bond yields 1.79% plus European inflation, 65 basis points over the 10-year French treasury bond.

Of all corporates, utilities are natural inflation issuers. Globally, for example, wages account for about 40% of Veolia Environnement's charges. Its remuneration and the price revision clauses in its contracts reflect this indirect link to general price evolution. So it makes sense for the company to have part of its debt – about 4% after this deal, although the eventual proportion has yet to be decided – directly indexed to inflation.

The deal attracted final orders of €670 million, enough to increase it from €500 million. And, as de Forges points out, these orders were not speculative. They came from a limited number of investors that were happy with the credit, with the price, and with how they treat corporate linkers.

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