Brussels: Europe and the Arabs
The European Commission in Brussels announced today, Wednesday, the raising of 7 billion euros in European Union bonds in its third joint deal for the year 2024.
According to the Commission’s statement, the deal relates to new green bonds worth 7 billion euros from what is known as the Next Generation European Union (NGEU), maturing on February 4, 2050.
The 25-year long bond came with a reoffer yield of 3.339%, which equates to a price of 98.481%. Bids received amounted to €86.5 billion, resulting in a subscription rate of more than 12 times.
The statement explained that the proceeds from the deal will be used to finance green projects in member states’ national recovery and resilience plans - roadmaps for spending within the framework of NextGenerationEU.
All NGEU green bond issuances are guided by the NGEU Green Bond Framework, which is aligned with the International Capital Market Association (ICMA) Green Bond Principles.
These bonds, due on February 4, 2050, carry a coupon of 3.25% and came with a reoffering yield of 3.339%, which equates to a price of 98.481%. The spread to the middle of the swap is 80 basis points, which is equivalent to 78.5 basis points over the green bonds due August 15, 2050 and 6.7 basis points over the green bonds due June 25, 2049.
The final order book amounted to more than 86.5 billion euros. The total amount of outstanding bonds now stands at 7 billion euros.
The joint lead managers of this transaction were Barclays, JPMorgan, Morgan Stanley, Société Générale and UniCredit.
The Commission has now released nearly €35.5 billion of the €75 billion financing target for the first half of 2024. A full overview of all EU transactions carried out to date is available online. A detailed overview of EU transactions planned for the first half of 2024 is also available in the EU Finance Plan. The next deal on the EU indicative issuance calendar is the EU bond auction on 20 March 2024
The European Commission is empowered by the EU Treaties to borrow from international capital markets on behalf of the European Union. It is an established name in the debt securities markets, with an impressive track record of bond issuances over the past 40 years. All issuances carried out by the European Commission are denominated exclusively in euros. EU borrowing is guaranteed by the EU budget, and contributions to the EU budget are an unconditional legal obligation of all Member States under the EU Treaties.
The European Commission uses the proceeds from its bond issues to finance selected EU policy programmes. Among the prominent political programs currently being financed by EU borrowing is the NextGenerationEU recovery programme. The EU will also use the bond issue to finance up to €33 billion in loans to Ukraine under the Ukraine Facility between 2024 and 2027. The Ukraine Facility provides stable financial support for Ukraine's recovery, reconstruction and reforms on the path to EU accession.
In January 2023, the EU launched the Single Funding Approach, extending the diversified financing strategy first established for NextGenerationEU to include all other policy programs financed by EU loans. After introducing this approach, the European Union financed its various policy programs by issuing single-branded EU bonds rather than bonds with separate brands for individual programmes.
Through today's deal, the EU has now issued €320.1 billion of EU bonds under the single financing approach, of which €55.9 billion are in the form of NGEU green bonds. Of the proceeds raised, €220.5 billion was disbursed to Member States under the Recovery and Resilience Facility. An additional €54.5 billion has been allocated to other EU programs that benefit from NextGenerationEU funding. EUR 18 billion was disbursed to Ukraine under the Macro Financial Assistance Policy+ in 2023, while the proceeds are also used to finance payments under the new Ukraine Facility. Since the Authority engages in short-term liquidity management operations to facilitate future financing needs, the amounts raised will not necessarily equal the amounts disbursed.
Total outstanding EU debt now stands at €494.9 billion, including European Atomic Energy Community debt (€311 million) and EU bills (€16.2 billion).
To finance EU policies as efficiently and effectively as possible, Commission issuances are structured through semi-annual financing plans and pre-announced issuance windows. To support secondary market liquidity for EU bonds, the Commission introduced a framework to incentivize EU primary dealers to bid for EU securities on electronic platforms in November 2023. In addition, the Commission will support the use of EU bonds in repurchase agreements by offering facilities Buyback later in 2024.