The European Investment Bank, which is a supranational institution situated in Luxembourg (EIB), will be approaching the Maltese market with the issue of Lm10 million bonds in Maltese lira. A supranational institution is an institution above the boundaries of any one territory or market.
This is a very prestigious issue both for the Maltese capital market which is witnessing the entry of a very big institution among its participants, and for the Bank of Valletta Group which, apart from acting as underwriters, will also be acting as managers, registrars, paying agents and sponsoring stockbrokers of this landmark issue.
The EIB, which is a non-profit making institution, has been the European Union's financing arm since 1958. It is an autonomous public institution established by the Treaty of Rome and is owned by the member states of the European Union. The bank's mission is to further the political objectives of the EU by providing long-term finance for specific capital investment projects. Within the EU, where most of its lending takes place, its purpose is to build a closer-knit Europe and to contribute to the balanced and steady development of a common market among member states. The EIB grants loans and gives guarantees to finance investment projects, by using its own capital resources and borrowings on capital markets.
Apart from lending to countries within the EU, the EIB also makes available amounts to non EU-member countries under the technical cooperation and development aid policies established by the European Union.
In fact, since 1978, the European Investment Bank has provided Malta with some Euro 70 million for water supply and waste water treatment, industry, tourism, telecommunications and transport.
The EIB is separate from the EU institutions and has its own governing bodies. It is directed and managed by a board of governors, a board of directors and a management committee. Its board of governors normally consists of the finance ministers of the EU member states.
Upon accession of the acceding countries, the capital of the European Investment Bank will be increased in proportion to the gross domestic products of the acceding countries relative to the member states.
The European Investment Bank, is the largest supranational lender. According to a presentation by Henry von Blumenthal of the Capital Markets Department of the European Investment Bank to financial intermediaries, over 50 per cent of its loans are made directly to or are guaranteed by European Union member states and public institutions of the European Union. Furthermore, 86 per cent of EIB loans are backed by a formal guarantee.
Mr von Blumenthal described EIB as a supranational benchmark issuer in the three core currencies, euro, US dollar and sterling. It also issues bonds in several currencies in order to obtain diversification. In fact its total outstanding debt as at December 31, 2003 amount to €189 billion, spread over 15 currencies. Out of this amount, 45 per cent was in euros, 24 per cent in sterling and 22 per cent in US dollars.
The EIB will now be offering to the general public Lm10 million 3.8 per cent bonds, at par, maturing on March 30, 2009. Interest on these bonds will be payable annually on March 30, starting from March 2005. Subscription lists for these bonds will open on Monday and close on Friday or earlier at the discretion of the issuer. The proceeds of the bond issue will be used for the general funding operations of the European Investment Bank.
The coupon being offered on these bonds represents a discount of approximately 0.55 per cent on the average gross redemption yields currently obtainable on Malta Government Stocks having the same maturity. This reflects the difference in the credit rating of the two issuers, with EIB's rating standing at AAA and Malta's rating at A. This bond, apart from having a very secure and high standing issuer, has also the benefit of being a short-term issue which, when taking into consideration that big economies such as the United Kingdom have recently witnessed interest rate increases, will prove to be attractive for those putting priority on reducing risk.
Application has been made to the Malta Financial Services Authority and the Malta Stock Exchange for these bonds to be listed and traded on the Malta Stock Exchange.
The bonds shall be held in a register of bonds maintained by the Central Securities Depositary of the Malta Stock Exchange. The issue will be fully underwritten by Bank of Valletta plc.
Persons investing in these bonds can opt to have the 15 per cent final withholding tax deducted from interest received on these bonds. The minimum per application for these bonds is Lm500 and must be in multiples of Lm100 thereafter.
Investors wishing to invest in these bonds are urged to read the offering memorandum and contact their investment adviser before investing.
Note: "Preserving your wealth" series will resume next Monday.
Paul V. Azzopardi is managing director of Azzopardi Investment Management Limited (www.azzopardi.com) which is licensed by the MFSA to provide investment services, including stockbroking. This article is only meant to provide information, which the writer believes to be accurate at the time of writing, and is not intended to give investment advice and its contents should not be construed as such. The value of securities, and the currencies in which they are denominated, may go down as well as up. Readers are requested to seek professional financial advice tailored to their own personal circumstances.