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Lourdes Rodríguez, IRO, European Investment Bank November 2005

Debt IR, a perspective from the Fixed Income Markets. Lourdes Rodríguez, IRO, European Investment Bank November 2005. EIB as an issuer: characteristics. Not listed => Fixed income securities are the only access to capital markets Shareholders: EU Member States AAA rating

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Lourdes Rodríguez, IRO, European Investment Bank November 2005

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  1. Debt IR, a perspective from the Fixed Income Markets Lourdes Rodríguez, IRO, European Investment Bank November 2005

  2. EIB as an issuer: characteristics • Not listed => Fixed income securities are the only access to capital markets • Shareholders: EU Member States • AAA rating • Large issuance volume: around EUR 50bn • Regularity: among most frequent issuers • Diversity: in terms of products and currencies (15 used in 2004) 2

  3. Summarising complex issuance at EIB • In perspective - most frequent issuer in public international market according to IFR (‘Top 250’ 2005) • The challenge – tailoring information to different currency / product market segments, as well as differing investor needs 3

  4. Information on the issuer Investment Grade Sovereigns Less important! Investment Grade Corporate Debt Important! High Yield Corporate Debt Very important! Why do we communicate? The value of a debt security is “subjective” Value of debt securities is determined by • macroeconomic factors, such as interest rates • bond characteristics (coupon, yield, “spreads”, seniority, …) • the credit standing of the issuer • existing or anticipated supply of “fungible” debt securities rating / characteristics and positioning of the issuer 4

  5. Why do we communicate? Differentiation beyond the rating • Differentiation within rating categories is visible in the variation of spreads: credit differentiation is one factor • This also applies among AAA sovereigns and sovereign surrogates such as EIB • Credit story identifies credit strengths, relative to peers • Therefore appropriate emphasis in Communications is required to duly explain differences Source: Market, May 2005 5

  6. Who communicates? Organisational issues Structuring the team • Importance of investment banks / dealers in a relatively dealer-driven market • However, effective IR activity enables better leveraging of dealers in investor communication • Complex and high frequency international issuance programs lend themselves to use of sizeable in-house teams with specialist origination and IR executives • This contrasts with the traditional Treasury led operation 6

  7. How do we communicate? Adapting to the market • Diversity of debt products • Equity: one “brand”, one product • Debt: one “brand”, multiple products • Information on the array of products available • Accessibility to listings of outstanding issues and its characteristics • Documentation: • Accessible (before and after issuance) • Clarity of the information • Is it up to the standards required by our investor base? 7

  8. How do we communicate? Adapting to the market • Different content emphasis – reflects audience needs • Equity: shareholder value story, sectoral and market cap factors • Debt: credit story / market segmentation, issuance strategy, product market specifics • Trading & transparency differentials • Equity: • Exchange / electronic trading leads –> transparency benefits • Accessible for retail, strong direct participation • Debt: • Electronic platforms important for highly liquid benchmarks • But, dealer-provided liquidity is central • Otherwise strong OTC culture / poor transparency • Relatively large trades / low frequency • Less direct access for retail -> cost issues Implication: greater demand for information from debt issuer 8

  9. How do we communicate? Adapting to the market • IR tools similar than in Equity IR, except in investor data • Prevalence of bearer securities reduces debtholder visibility • Cost for debtholder ID across multiple bonds can be punitive, (which reinforces the importance internal data warehouses) • Integrated data/CRM systems, which allow for the diversity and complexity of the debt securities, not offered by large providers • In terms of consultancy/outsourcing 9

  10. What do we communicate? Focus on relevant credit strengths • EIB issuer category: sovereign class : “Consolidated European Sovereign Issuer” • Points of differentiation include: • Pan-European exposure “The Way to buy Europe” • Risk diversification via ownership structure: 25 Member States of the EU • Credit quality: Top “AAA” • Exceptional asset quality • Strong shareholders’ support – EU members States • Minimal headline risk • Mission – activity: “Policy-driven public bank”: promotes EU policies by financing investments that further European integration

  11. What do we communicate? Loan quality in perspective – an example Ultimate obligors of EIB loans Standard and Poor’s Credit Quality Index as of 31 December 2004 The index measures the risk embedded in the country loan portfolio of Multilateral Lending Institution. • The Member States and EU Public Institutions are ultimate obligors for over 50% of the loans • 78% of EIB loans are backed by a formal guarantee Source: Standard & Poor’s (Credit Report, March 2005)

  12. What do we communicate? Funding strategy and positioning • Funding strategy: • Pursuit of liquidity across comprehensive yield curves • Close attention to secondary market performance • Types of products: • Sole supranational benchmark issuer across the curve in the three core currencies: EUR, GBP and USD • Tailor-made plain vanilla and structured issues in various currencies • Market characteristics: • Responsiveness: to the market in terms of timing, product and maturity selection • Quality of execution – Transparency – Liquidity - Performance 12

  13. What do we communicate? Introducing presence in a currency- an example € 5bn 2037 € 5bn 2020 EIB IN EUR 2004: EUR 17.4bn via 54 transactions • Ground-breaking 15-year EARN benchmark € 5bn 2015 € 5bn 2013 € 5bn 2012 2005 Highlights: EUR 18.3bn via 84 transactions • Ground-breaking 30-year EARN benchmark • Record issuance of structured transactions (around 50% of issuance in EUR) € 5bn 2010 € 5.5bn 2009 € 5.5bn 2008 € 6.1bn 2008 € 5bn 2007 € € 2.6bn 2007 € 5bn 2007 € 5bn 2006 (A trademark of EuroMTS) € 5bn 2005 13 As of Oct 2005

  14. What do we communicate? Selling points for a market segment – an example EUR Benchmarks – Euro Area Reference Notes (EARNs) • Total benchmark outstanding approx. EUR 64 bn • Diversified exposure to all EU sovereigns (a reminder) • Sovereign class liquidity and tight bid-offer spreads • Most heavily traded quasi-sovereign on MTS system • Transparency: Electronic trading on leading platforms • Liquidity maintenance in the secondary market (e.g. EUR 474 million increase of EARN 3.25% Oct 08) 14

  15. What do we communicate? Selected topics during an issue A variety of value drivers other than credit may be considered: • issuer positioning and commitment in this segment • macroeconomic factors, such as interest rates • bond characteristics (coupon, yield, “spreads”, seniority, …) • relative value • supply of comparable debt securities

  16. What do we communicate? Selected topics during an issue – an example EARN 2015 fits the market environment EARN 2015 is launched at a moment of… • … limited government supply • … low yield in short maturities and offers… • … good value versus core governments 16

  17. What do we communicate? Selected topics during an issue – an example Good value versus core governments Source: CSFB, as of Sep. 9th 2005 17

  18. To whom do we communicate? Same audiences • Investors • Analysts • Rating agencies • Internal audiences • Specialized press

  19. Press convey recognition among dealers for EIB • Borrower of the Year 2004 • European Borrower • Agency / Supranational Borrower • Supranational / Sovereign / Agency bond Top Borrowers as voted by Banks No.1 Most impressive borrower of 2004 No.1 Best Supranational / Agency No.1 Most innovative Borrower Overall Deals of the Year 2004: No.1 EUR 4bn 4.625% April 2020 No.5 USD 1.5bn 4.625% May 2014 Deals of the year by category: No1. EURO Sovereign / Supranational / Agency EUR 4bn 4.625% Apr. 2020 No.1 USD Sovereign / Supranational / Agency USD 1.5bn 4.625% May 2014 Currencies: Deal of the year in New Zealand Dollar (NZD 200m 6.5% Sep 2014) No.2 Emerging Markets (HUF 46bn 9% Jul 2007) Best Supranational Borrower in Western Europe 2004 • Institutional Performance Award 2004 • 3 Deals of the Year: • JPY 50bn Japanese CPI-Linked Notes • EUR 190m/EUR 250m CMS Spread Target Redemption Notes • EUR 625m CMS Periodic Capped FRN Best Borrower in CEE for the year 2004 And deal specific awards: • Best bond deal in local currency • USD 75m / RUB 2.1bn 2010 Synthetic Transaction • Best bond deal in a G7 currency • EUR 4bn 4.625% April 2020

  20. The Way to Buy Europe

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