newsletter...newsletter n 22 december 2016 this newsletter is provided for information purposes only...
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FUNDING REVIEW Q4 2016 SHORT-TERM FUNDINGESM bills issued in Q4 2016
ISIN code Auction date
Tenor/ maturity
Issue amount
Weighted average
yieldAverage price Bid/
cover
EU000A1Z97V1 06/12/16 3 mth 09/03/17 EUR 1.47320 bn -0.6984% 100.17684% 3.4
EU000A1Z97U3 22/11/16 6 mth 18/05/17 EUR 1.43400 bn -0.6445% 100.31430% 2.6
EU000A1Z97T5 08/11/16 3 mth 09/02/17 EUR 1.49120 bn -0.6894% 100.17458% 3.1
EU000A1Z97S7 18/10/16 6 mth 20/04/17 EUR 1.46730 bn -0.6307% 100.31985% 3.4
EU000A1Z97R9 04/10/16 3 mth 12/01/17 EUR 1.49925 bn -0.6452% 100.17595% 3.3 LONG-TERM FUNDINGEFSF bonds issued in Q4 2016
On 26 October, the EFSF raised the required €2 billion for the quarter through a tap of the May 2026 bond.
Type ISIN code Issue date
Tenor/ maturity
Nominal amount
Issuance level
Reoffer yield Coupon
Tap EU000A1G0DH5 02/11/16 10 year 31/05/26 EUR 2 bn MS -19bp 0.218% 0.400%
ESM bonds issued in Q4 2016The ESM started the quarter with a dual tranche transaction on 11 October issuing a €3 billion new 6-year bond and a €1 billion tap of
the ESM May 2032 bond. The remaining €1 billion was raised by a tap via auction of the April 2024 bond bringing the total size of the bond to €5 billion.
Type ISIN code Issue date
Tenor/ maturity
Nominal amount
Issuance level
Reoffer yield Coupon
Tap via auction EU000A1U9951 11/11/16 8 year 22/04/24 EUR 0.98975 bn n/a 0.04%* 0.125%
Tap EU000A1U9969 18/10/16 16 year 03/05/32 EUR 1 bn MS-13bp 0.660% 1.125%
New EU000A1U9985 18/10/16 6 year 18/10/22 EUR 3 bn MS-22bp -0.203% 0.00%
* average yield
N-BondsThe EFSF and ESM raised €695 million in N-Bonds in 2016.
EARLY REPAYMENT BY SPAINOn 7 November the ESM Board of Directors approved a fourth early repayment by Spain for an amount of €1 billion. As a consequence the ESM annual funding target was revised downwards by €1 billion. In total, Spain now has repaid €6.6 billion of the €41.3 billion loan which was disbursed in 2012 and 2013 to recapitalise the Spanish banks. The remaining loan amount is €34.7 billion.
Recapitalisation of Spanish banking sector (€ billion)
Dear Investor,
Last week, euro area finance ministers adopted a series of debt relief measures for Greece. The Eurogroup had promised this in May of this year, as long as the country executed a series of steps to reform its economy. Having passed this hurdle, the debt relief will now be put in place.The impact of the measures is sizeable, which is another sign of the financial solidarity that euro area countries are willing to provide. The measures will help to put Greece’s annual debt payments on a more sustainable footing, and support Greece on its way back to the market. There are also some upfront costs, but these will be borne entirely by the country itself.The ESM was responsible for preparing these short-term measures. This made the past few weeks very busy ones for the ESM. It particularly meant more work for the funding team, even though they already had completed the entire issuance programme in November.The measures will also mean a slight increase in our funding volume for next year. This is to cover liquidity needs for some of the different schemes that we will use, such as the bond exchange with the Greek banks, and collateral needs for the swap arrangements.Together, the ESM and EFSF now expect to issue €57 billion next year, compared to the €50 billion that we had announced earlier. The final volume will depend on market conditions, and, obviously, we will execute any deals with caution.It is important to note that the debt relief measures will have no impact on the funding strategy. Both the EFSF and the ESM will remain present along the entire yield curve in benchmark size.Another important project for the ESM is the first dollar-denominated bond towards the end of next year. This will enable us to diversify our investor base even further.To put it in one sentence: 2017 will be another exciting year. We will be ready to tackle any challenges – as a crisis resolution mechanism, overcoming hurdles is in our genes. The trust that you put in our institution by participating in our issuance programme has been an absolutely crucial support, that goes without saying. I look forward to engaging with you again next year.
I wish you all the best for 2017.
Newsletter N°22 December 2016
This newsletter is provided for information purposes only and does not constitute, or form part of, any offer or invitation to underwrite, subscribe for or otherwise acquire or dispose of, or any solicitation of any offer to underwrite, subscribe for or otherwise acquire or dispose of, any debt or other securities of EFSF or ESM.This newsletter is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. In particular, this newsletter is not for distribution for anyone physically present in the United States of America or a “US person” as defined in Regulation S under the US Securities Act of 1933, as amended.
For further information: www.esm.europa.eu https://twitter.com/ESM_Press
34.7
6.6
Outstanding loan
Repayment
Klaus Regling ESM Managing Director
EFSF CEO
| 2For further information: www.esm.europa.eu https://twitter.com/ESM_Press
LONG-TERM FUNDING
EFSFThe EFSF scheduled funding target for the first quarter is €9 billion.
ESMThe ESM scheduled funding target for the first quarter is €5.5 billion.
N-BondsThe EFSF and ESM will continue their N-Bond programmes in 2017.
FUNDING OUTLOOK FOR 2017 & 2018On 5 December, the Eurogroup approved short-term measures for Greece. Consequently, the combined funding for the EFSF and ESM for 2017 will now be €57 billion.
• €40 billion for EFSF• €17 billion for ESM
Compared to previous announcements, this means an increase of, in total, €7 billion. The EFSF funding volumes are increased by €13 billion to execute the short term measures for Greece. At the same time long-term funding volumes for ESM are reduced by €6 billion to limit the overall supply of the EFSF and ESM.
SHORT-TERM FUNDING
Q1 2017 Bill Auctions3 month 6 month
January Tuesday 10 Tuesday 24
February Tuesday 7 Tuesday 21
March Tuesday 7 Tuesday 21
Q1 2017 Timetable of potential benchmark transactions. Transactions may be for the EFSF or ESM.
Week 2 Monday 9 – Friday 13 January
Week 4 Monday 23 – Friday 27 January
Week 6 Monday 6 – Friday 10 February
Week 8 Monday 20 – Friday 24 February
Week 10 Monday 6 – Friday 10 March
Week 12 Monday 20 – Friday 24 March
Newsletter N°22 December 2016
This newsletter is provided for information purposes only and does not constitute, or form part of, any offer or invitation to underwrite, subscribe for or otherwise acquire or dispose of, or any solicitation of any offer to underwrite, subscribe for or otherwise acquire or dispose of, any debt or other securities of EFSF or ESM.This newsletter is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. In particular, this newsletter is not for distribution for anyone physically present in the United States of America or a “US person” as defined in Regulation S under the US Securities Act of 1933, as amended.
OVERVIEW LONG-TERM FUNDING 2017
€ billion Q1 2017 Q2 2017 Q3 2017 Q4 2017 TOTAL 2017
Long-term funding 9.0 13.5 14.0 3.5 40.0
€ billion Q1 2017 Q2 2017 Q3 2017 Q4 2017 TOTAL 2017
Long-term funding 5.5 4.0 2.0 5.5 17.0
Please note that figures are based on estimates and may vary. These figures do not include any cashless operations. Total lending requirements for future periods are based on current disbursement schedule.
20172016Includes N-Bond programme.Please note that figures are based on estimates and may vary.
20180
10
20
30
40
14
24.5
40
1721 20
EFSF ESM
EFSF & ESM Long-term Funding Programmes 2016-2018 (€bn)*
| 3For further information: www.esm.europa.eu https://twitter.com/ESM_Press
SHORT-TERM MEASURES FOR GREECE: USING THE FUNDING STRATEGY TO REDUCE INTEREST RATE RISK On 5 December 2016, the ESM presented detailed plans for the short-term measures for Greece to the Eurogroup, which agreed to adopt them.
One element of the plan is to use the funding strategy to reduce the interest rate risk for Greece. For this, there are three different schemes:
1. Bond exchange. To recapitalise the banks, the EFSF/ESM provided loans to Greece worth a total of €42.7 billion. These loans were not disbursed in cash, but in the form of floating-rate notes. Greece used the notes to recapitalise banks. The notes will now be exchanged for fixed-rate bonds with a longer maturity. Because the new bonds are fixed rate, Greece no longer bears the risk that interest rates will go up. The banks are prohibited from selling the floating-rate notes and the fixed-rate notes to the market, but they can sell them to the ECB. Notes that the banks have already sold are excluded from the exchange. After a certain amount of time, the EFSF/ESM will buy back the fixed-rate notes the Greek banks still hold to avoid them having to bear the interest rate risk.
Newsletter N°22 December 2016
This newsletter is provided for information purposes only and does not constitute, or form part of, any offer or invitation to underwrite, subscribe for or otherwise acquire or dispose of, or any solicitation of any offer to underwrite, subscribe for or otherwise acquire or dispose of, any debt or other securities of EFSF or ESM.This newsletter is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. In particular, this newsletter is not for distribution for anyone physically present in the United States of America or a “US person” as defined in Regulation S under the US Securities Act of 1933, as amended.
This will be done with funds raised on the market. To ensure a smooth execution, this process will take place in several phases over a longer period of time.
2. ESM swap arrangements: This scheme would stabilise the ESM’s overall cost of funding and reduce the risk that Greece would have to pay a higher interest rate on its loans when rates in financial markets start rising in the future.
3. Matched funding: This scheme foresees the ESM charging a fixed rate on part of future disbursements to Greece. This would entail issuing long-term bonds that closely match the maturity of the Greek loans.
Regarding timing, the three schemes to reduce the interest rate risk will be pursued to the extent possible given market conditions and implementation feasibility.
The ESM/EFSF funding strategy remains unchanged and both issuers will continue to be present in benchmark sizes along the entire yield curve.
For further information, please see the Explainer on the ESM website.
Best wishes for 2017
from the EFSF/ESM Funding & IR Team
To contact us
Kalin A. Anev JanseMember of the Management Board Funding, ALM & Lending and Secretary GeneralTel: +352 260 962 400Email: [email protected]
Siegfried RuhlHead of Funding and Investor RelationsTel: +352 260 962 630Email: [email protected]
Wolfgang ProisslHead of Communication & Chief SpokespersonTel: +352 260 962 230Email: [email protected]
New ESM websiteThe ESM has launched a new website that provides you with all the information you need on the EFSF and ESM in one place: www.esm.europa.eu