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Finland’s sovereign bond attracts broad investor demand

Find out how we recently supported Finland with their second benchmark issuance of the year, as they look to drive economic recovery post-COVID.

Finnish COVID-19 economic recovery set to gain momentum by end of the year

The Republic of Finland is the most sparsely populated country in the EU with 5.5 million people living across 338,455 km2. Finland, which has ranked first in the United Nations World Happiness Report for four consecutive years since 2018, is one of the world's leading wood producers.  Manufacturing and refining account for 31% of the GDP, with paper products and steel products – such as machines and electronics – the most important industrial goods. 

While the substantial increase in new COVID-19 cases in spring 2021 continues to cast a shadow on Finland’s economic activities, the country’s  economy is expected to experience a boost in growth  towards the end of this year, with gross domestic product (GDP) forecast to rise by 2.6% in 2021 and a further 2.5% in 2022 and 1.5% in 2023.

At the same time, the general government deficit will contract sharply in 2022 as the support measures prompted by the COVID-19 pandemic will come to an end.  However, the general government deficit will persist, with the public debt-to-GDP ratio estimated to increase from the current level of 70% to 75% by the year 2025. Against this backdrop, the Republic of Finland’s total gross funding is expected to amount to €37.1bn in 2021, which represents €12.9bn net borrowing for the year. Long-term funding is forecast to account for around 49.9% of total funding, with the remainder to be covered through short-term Treasury Bills.

The country has planned to issue three new EUR benchmark bonds in 2021; these issuances may be supplemented by transactions under its EMTN programme, as well as quarterly RFGB auctions during the year.

Successful execution with minimal new issue concession

For its second benchmark issuance in 2021, following a EUR 3bn 30-year bond in February, the Republic of Finland’s Treasury selected NatWest for the role as Joint Lead Manager.

Despite heightened volatility in the EUR market, Finland were able to garner an impressive order volume within hours of books opening for this new 10-year, September 2031 EURO benchmark. Demand continued to grow even as pricing tightened, attracting overall demand of EUR 18.5bn and orders settling at EUR 13bn after further revised price guidance.

The Finnish Treasury, which priced the trade at a modest 1bp (basis point) new issue concession, setting the bond’s coupon at 0.125%, reached an extremely broad audience of investors with over 110 orders from different accounts: investors from Nordic countries, including Finland, accounted for 35%, while Benelux/French investors accounted for 20% and the UK and GAS investor base for 14% each. Banks took 30% of the share, followed by pension funds and insurers at 23%.

A testament to Finland’s strong credit credentials

Damien Carde, Head of FBG DCM, NatWest, said: “We’re delighted to have supported the Republic of Finland’s Treasury with this successful transaction. Despite the challenging market, the Finnish offer, based on the country’s strong credit credentials, stood out, with an extremely broad audience of investors rushing to get their orders in.”

Anu Sammallahti, Deputy Director State Treasury, Republic of Finland, commented on the transaction: “Despite the rising yields and the nervousness in the markets caused by inflation and continuation to monetary policy, we witnessed good demand for our bond; and we are very pleased with the versatile,  high quality investor base we attracted.”

The information provided in this article has been prepared by National Westminster Bank Plc (NatWest) for information purposes only and is subject to change from time to time. The information and views expressed should not be treated as advice or a recommendation of any kind. NatWest makes no representation, warranty, undertaking or assurance of any kind (express or implied) with respect to the adequacy, accuracy, completeness or reasonableness of the information provided and disclaims all liability for any use you, your affiliates, connected companies, employees, or your advisers make of it. NatWest accepts no liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this material or reliance on the information contained herein. However, this shall not restrict, exclude or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed. Copyright 2021 © NatWest Bank Plc. All rights reserved.

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