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Investors show equal desire for EU’s NGEU bonds

NextGenerationEU – more than a recovery plan

NextGenerationEU (NGEU) is the EU’s more than €800 billion temporary recovery instrument to help repair the immediate economic and social damage brought about by the COVID-19 pandemic.

The centrepiece of NextGenerationEU is the Recovery and Resilience Facility, which comprises €723.8 billion in loans and grants available to not only mitigate the economic and social impact of the pandemic, but to also make European economies and societies more sustainable, resilient and better prepared for the challenges and opportunities of the green and digital transitions. 

To finance the NGEU plan, the European Commission, on behalf of the EU, is borrowing on the capital markets, with borrowing concentrated between mid-2021 to 2026, with all debt to be repaid by 2058.

Demand soars for EU’s 3-year bond on back of market desire for short tenors

Looking to take advantage of the sizeable demand for short tenors and seeking to issue its ninth transaction under the NGEU funding programme, the EU asked NatWest to support in the role of Joint Bookrunner with a dual tranche €6 billion 3-year bond and a €3 billion tap for its 2051 bond. 

Announcing the €6 billion 3-year bond as a no-grow, investors rushed to place orders, with final books totalling over €56 billion, meaning the orderbook was more than nine-times over-subscribed for the transaction which was priced with a 0.8000% coupon. 

More than 280 investors participated, with a geographically diverse allocation: UK investors accounted for the largest share of demand at 29%, followed by investors from the Nordics with 14% and from Germany with 9%, whilst French, Italian and MEA investors took 7% each. 6% of the allocation went to Iberia, 5% to investors in other European countries, 5% to each Switzerland and Benelux, 4% to the Americas (4%) and 2% to Asian investors. 

Orderbook for €3 billion tap 16 times over-subscribed

Representing the first transaction for over two months with a 30-year tenor, the EU’s €3 billion tap for its 2051 bond equally saw extraordinary demand: with final orderbooks of over €48 billion from more than 300 investors, the tap – with a coupon of 0.7000% – became the most oversubscribed NGEU transaction to-date. 

Like the 3-year bond of the dual tranche, the tap captured a very diverse and broad investor base: Nordic investors accounted for the largest share at 18%, Benelux investors followed at 13%, and UK investors at 12%. Investors in Germany, Italy and other European countries all took 11% of the allocated book, followed by investors in France (9%), Iberia (9%), Switzerland (3%), Asia (2%), and the Middle East and Africa at 1%.

With this ninth transaction completed, the NGEU programme has reached €96 billion in syndications. Furthermore, with the sale of its first 3-year bond, the European Commission has now established its issuances across the full spectrum of bond maturities, spanning from three to 30 years.

Making a difference in EU countries

Kerr Finlayson, NatWest, commented on the transaction: “We are delighted to have again been able to support the EU, following our Joint Lead Manager roles across both SURE and NGEU transactions for the European Union in 2021. The success of this transaction continues to reflect investors’ recognition of the EU’s diverse funding strategy for its NGEU and SURE plans, and we are proud to help make a difference in EU countries looking to mitigate the impact of the pandemic as well as prepare for their sustainability journeys.”

Disclaimer

This document has been prepared for information purposes only, does not constitute an analysis of all potentially material issues and is subject to change at any time without prior notice. NatWest Markets does not undertake to update you of such changes.  It is indicative only and is not binding. Other than as indicated, this document has been prepared on the basis of publicly available information believed to be reliable but no representation, warranty, undertaking or assurance of any kind, express or implied, is made as to the adequacy, accuracy, completeness or reasonableness of the information contained in this document, nor does NatWest Markets accept any obligation to any recipient to update or correct any information contained herein. Views expressed herein are not intended to be and should not be viewed as advice or as a personal recommendation. The views expressed herein may not be objective or independent of the interests of the authors or other NatWest Markets trading desks, who may be active participants in the markets, investments or strategies referred to in this document. NatWest Markets will not act and has not acted as your legal, tax, regulatory, accounting or investment adviser; nor does NatWest Markets owe any fiduciary duties to you in connection with this, and/or any related transaction and no reliance may be placed on NatWest Markets for investment advice or recommendations of any sort. You should make your own independent evaluation of the relevance and adequacy of the information contained in this document and any issues that are of concern to you.

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