borrowing strategy in recent years:seeking increased liquidity and lower costs; fostering
development of Central and Eastern European markets; maintaining a presence on
most of the world’s capital markets. The first policy goalwas achieved by raising 90%
of the Bank’s resources (28.3 billion) inthree leading currencies - the euro, the pound
sterling and the US dollar, and by establishing benchmark issues right across the yield
curve in these currencies. Theeurowas the main pillar of borrowing activity in 1999, by
virtue of the Bank’s strategy since 1996. The main development at the long-dated end of
the EUR spectrum was the launch of theEARN “Euro Area Reference Notes”issuance
facility. The strong showing staged by both theGBPandUSDmarkets throughout last
year gave the EIB the opportunity to strengthen its position on these markets as a leading
issuer of benchmarks and to enable its own borrowers to benefit from this status. Moreover,
the supply of structured products meeting the requirements of both institutional and retail
investors on some domestic capital markets made it possible for the EIB to cut the cost of its
fund-raising appreciably and to encourage greater loyalty among clients looking for attrac-
tively priced financial products.The second main thrustwas geared towards furthering
the EIB’s support and development of capital markets in pre-accession countries in Central
and Eastern Europe. The Bank set up a pioneering debt issuance programme in Czech
koruny, instituting a new issuance technique identical to that used on the euro-market, but
hitherto unknown on the Czech Republic’s domestic bond market; it also inaugurated a
10-year segment on the same market. Lastly,the third strategic drivesaw the EIB
actively involved in most capital markets outside Europe and the USA (South Africa, Asia
and Australia). The Bank’s aims were also fulfilled as a result of shrewd expertise in risk
control, a fundamental criterion for the Bank’s management and an area in which the EIB
has tightened its guidelines.
In 2000, the EIB will endeavour, in particular, to develop innovative products, to accom- modate its clients’ needs more effectively (both borrowers and investors), to step up its support for emerging countries, most notably those in Central and Eastern Europe, to open these up to major markets as well as to broaden its geographical and sectoral cov- erage. Furthermore, it will optimise its use of modern communications technology - the Internet - thereby adding value to and enhancing the transparency of its borrowing operations to its clients’ advantage.
Total borrowings signed, beforecurrency and interest-rate swaps, amounted to29 295 mil- lion, down 7% on 1998 (31 463 million); the proportion collected in EU currencies was the same as in 1998, i.e. 68%, with some 43%
being raised in EUR (compared with 41% in the future euro-11 currencies in 1998). Of this total, 961 million was concluded under the second debt exchange offer aimed at restruc- turing the Bank’s debt into euro, a process
initiated in June 1998 (1 318 million), and
28 334 million was obtained on capital mar- kets to finance loans or to cover cash flow shortfalls.
The 6% decline in totalresources raisedcan be attributed, in particular, to the slower pace of loan disbursements, the less accommodating mood on certain financial markets compared with 1998 and investors’ circumspect attitudes in the run-up to the Year 2000. In its borrow- ings, the EIB was particularly active on the markets of the three main currencies: EUR
(41% compared with 39% in the future
euro-11 currencies in 1998) of which over half coming under the EARN facility, GBP (25%)
and USD (23%), this trio together accounting for almost 90% of all issues.
The euro’s arrival on the scene understand- ably led to a marked reduction in the number of currencies borrowed by the Bank. None- theless, aggregate resources borrowed were garnered in 16 different currencies (22 in 1998) and in 120 operations of which 64 were launched as part of medium-term note or debt issuance programmes and four under the EARN issuance facility (excluding an issue launched as part of the euro debt exchange offer programme). The issues were split be- tween 101 public offerings and 19 private placements.
Resources raised after currency and interest- rateswaps, undertaken particularly to satisfy the requirements of the Bank’s borrowers, to- talled28 355 million(30 098 million in 1998). The three main currencies - EUR, USD and GBP - accounted for 97% of this total. The EUR amounted to 44% whilst the proportion raised in GBP and USD together exceeded half of the total owing to the very attractive conditions which the Bank could then pass on to its borrowers. The percentage raised inEU
opposed to 78%), as a result, most noticeably, of the steep increase in the USD’s share (up to 28% from 21%).
Significantly more floating-rate resources (21 850 million as against 14 141 million in 1998) - accounting for 77% overall (47% in 1998) - were raised thanfixed-rateborrowings (6 506 millioncompared with 15 957 million in 1998). This strong rise amply demonstrates the particularly advantageous arbitrage conditions on the swaps market, particularly appreciated by the Bank’s clients, especially in USD, EUR and GBP as well as Swedish kronor (SEK), Greek drachma (GRD) and Czech koruny (CZK). Since 1995, the Bank’s borrowing strategy has been geared towards two specific goals in its issuing operations: seeking liquidity, gener- ally by means of benchmark issues, and
cutting resource-raising coststhrough oppor- tunistic issues, thereby offering investors a di- versified range of products. 22 545 million
was raised throughliquid borrowings which, via the issue of subsequent new or fungible tranches, made it feasible to establish bench- mark issues along the entire length of the yield curve, thereby cementing the Bank’s po- sition as a leading AAA-rated international borrower. Opportunistic borrowings, which have been growing steadily since their intro- duction, have now come to account for one fifth of all funds raised (5 789 million). Such operations are generally issued in a struc- tured format to meet the needs of target investors. When it comes to this type of issue, the Bank exercises great care in assessing the risks involved.
At 10.1 years,theaverage maturity of borrow- ings last year was on a par with the previous year’s level of 10.2 years, while individual matu- rities stretched from 3 to 40 years (as opposed to 3 to 30 years in 1998). In general, long-dated maturities applied in particular to GBP opera- tions (up to 40 years) in both structured and plain vanilla products. Opportunistic borrowings tended to have noticeably longer maturities than in 1998 (14.1 years compared with 8.7 years), characterised by structured borrowings linked, for example, to stock exchange indexes or taking the form of zero coupon issues. As part of its debt management, the Bank engaged inearly redemptions and buy-backs
worth in total1 005 million.
The Bank’srecourse to the swap markets re- mained high (87% of resources raised com- pared with 62% in 1998). The total volume of swaps before fixed/reverse floaters totalled
24 581 million as against 20 586 million in 1998, with operations numbering 122 as in 1998. This brisk growth in volume was in re- sponse to the need to adapt resources to bor- rowers’ requirements in terms of currencies and interest-rate formulae or to convert structured issues into plain vanilla chiefly floating-rate products.
To guard against interest-rate risks, equiva- lent in volume terms to 16% of resources raised at fixed rate after swaps, operations were basically hedged via fixed/reverse float- ers and by drawing on the hedging bond portfolio comprising fixed-rate securities with the same characteristics as those issued by the Bank, resold in line with loan disburse- ment needs.