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Monday, 23 October 2017

Capital increase to strengthen EIB

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The European Investment Bank, whose shareholders are the 27-member states of the EU, approved a €10bn capital increase at the end of June last year. This will allow the EIB to boost funding by up to €70bn or 30% a year until 2015. “Since 2008, the EIB has made a valuable contribution to the EU economic recovery plan. This capital increase will strengthen the EIB and increase its contribution to addressing investment challenges that Europe faces,” said Herman Van Rompuy, president of the European Council.

The move will lead to increased borrowing from the capital markets. The EIB borrows money there rather than drawing it from the EU budget. “The EIB has turned around in the past nine months since the decision last summer to increase funding,” said the head of SSA origination at one European bank.

At the start of the year the EIB went with sterling for its first benchmark of 2013, a £1bn five-year issue that priced at 40bp over the 5% March 2018 Gilt. It raised around £6.8bn in sterling last year. Thanks to demand it doubled in size in bookbuilding and priced at the tight end of guidance.

But the majority of this year’s funding is likely to come from Euro benchmarks. The EIB has sold more than €14bn paper in its euro programme so far. This has included a €5bn 1% five-year Euro Area Reference Note (EARN) at mid-swaps minus 1bp in mid-January; a €4bn 1.5% seven-year EARN in early March; a €1.5bn tap of its 2.25% 10-year EARN; and an €850m 2.75% March 2040, among others.

In December last year Eila Kreivi, head of capital markets at the EIB, raised concerns that “the low yield and spread environment is making it very challenging for investors, and likewise for us to be able to provide the right products”. So far it has not been the case.

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