Issuing Euro-based bonds with VP the quickest most efficient path to the international markets
Since 2016, companies and financial institutions have been able to issue bonds in Euros through VP Securities on the T2S Platform.
Over the course of the four years that have followed, some of Denmark’s largest bond issuers, including Danske Bank, Nykredit, Danish Ship Finance (Danmarks Skibskredit) and corporates such as DSV have taken advantage of this opportunity. This article takes a look at the advantages of issuing bonds in Euros through VP, and how these institutions have benefitted from an efficient infrastructure.
Increased efficiencyOne of the benefits of using the same CSD to issue both DKK and EUR bonds is that issuers can use the same business process irrespective of the target currency. This is highlighted by Danske Bank’s experience of issuing structured bonds in both EUR and DKK through VP. By moving issuance to VP, Danske Bank
reduced the total cost of issuance as a result of increased operational simplicity. As Morten Lilleøre, Global Head of Securities Services at Danske Bank puts it: “We get the benefit of one single harmonised process for structured products.”
By streamlining the process and centralising on one CSD, issuers can significantly reduce their operational costs, a very attractive prospect at a time when many financial institutions are focused on reducing costs. Centralisation also paves the way for process improvement, as back-office staff spend less time learning various settlement processes and systems, and can instead focus on honing one process, making it faster and more effective. The end result is a settlement process with fewer errors.
Issuing Euro-based bonds through VP is also more efficient from a legal perspective, as Nykredit experienced when issuing Euro-based mortgage bonds through VP. They experienced a significant cost savings by issuing bonds under a Danish law prospectus, and a simpler process with fewer advisors and external counsel involved.
Access to a broader investor poolVP uses the T2S platform to settle Euro-denominated bonds, meaning that issuers gain access to a much larger investment base. There are currently 21 Central Securities Depositories (CSDs) on the T2S platform and a total of 1,490 banks, plus the 3,090 banks that have accounts at Euroclear and Clearstream.
Issuers also reach Tier 2 and 3 investors by issuing via T2S. Reaching a broader range of investors was an attractive prospect for DSV, when that company
issued a corporate bond of EUR 200,000,000 with VP back in 2017.
Minimised riskMinimising risk is another key advantage when issuing Euro-denominated bonds through VP. VP settles using central bank funds, as opposed to the commercial ICSDs that settle using commercial bank funds. Thus, by issuing with VP, customers get access to the same price structure as they would on the international market, yet with considerably lower risk.
Increasing demand on the bond marketToday, the international capital markets are facing the most challenging time since the 2007/8 financial crisis. In the coming months, there will be a significant need to issue treasury bonds in order to finance the numerous bailout packages countries around the world are instituting. For example, Danmarks Nationalbank needs to issue approx. DKK 300 billion to fund the Danish bailout packages. The EU is contemplating a package that will need to raise DKK 5.6 trillion in order to finance it. Companies in hard-hit industries will also have to consider the bond market as a means for raising capital. In all of these instances, being able to reach the broadest range of investors possible will be critical, as will having a streamlined, efficient issuance process.
At VP, we’re pleased to support the issuance needs of the Nordic capital market, and help all companies, banks and central banks by offering an up-to-date settlement platform that offers access to all markets, and the widest range of investors, for the least amount of effort.