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ECB’s buying policy attracts companies to the EU, says Intertrust Group’s Arno Vink

6 January 2021

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Our Director, Capital Markets in the Netherlands Arno Vink was featured in Financial Investigator last week, offering his views on why Europe is seeing ever-increasing interest from foreign investors. Read on for an English translation of the article.
A growing number of companies are settling in the Eurozone in order to take advantage of the European Central Bank’s bond-buying programme. “They can issue bonds here on attractive terms. However, there are conditions that these companies have to take into account”, says Arno Vink, Director, Capital Markets at financial services provider Intertrust Group in the Netherlands.

The European Central Bank (ECB) buys bonds worth billions every month in a comprehensive bond purchase programme to stimulate economic growth and support companies. The central bank also buys corporate bonds.

The amounts involved are enormous. Under the Asset Purchase Programme (APP) alone, which made 20 billion a month available and was increased by another 120 billion in mid-2020, monthly buys amount to around 20-40 billion euros. And with the additional Pandemic Emergency Purchase Programme (PEPP), which was introduced by the ECB during the coronavirus crisis and is offering an extra 1,850 billion euros of support until March 2022, monthly buys now amount to 60-120 billion euros per month. This is attracting the attention of foreign companies that are looking for attractive capital opportunities.

The ECB imposes conditions

Intertrust Group has noticed increasing interest from companies outside the EU who wish to make use of these financing possibilities.

“We have noticed this because new customers are asking us to help them set up a branch in Europe,” says Vink.

He continues: “Not all bonds are eligible for the bond-buying programme. One of the ECB’s conditions for buying corporate bonds is that the issuer must be established in the European Economic Area (EEA) and the transaction is carried out in the Eurozone. A growing number of companies, from England or Sweden for example, are therefore considering setting up a branch in the Eurozone. The Netherlands and Luxembourg are particularly popular. These countries are attractive because of the efficient and stable business climate for such issuers and the well-developed issuance market and practice.”

According to Vink, companies must realise that there are conditions attached to the ECB’s purchase policy. For example, the ECB only buys high-quality (“investment grade”) bonds denominated in euros, issued by non-banking institutions. Moreover, the ECB cannot buy back more than 70% of the outstanding bonds. For companies in the public sector, this percentage is even lower because of European state aid rules.

‘No free lunch’

So there is no free lunch. Companies must have a presence in the EEA, take the necessary (legal) steps to be able to issue bonds and can only offer high-quality bonds with a certain rating to the ECB.

According to Vink, the arrival of companies in the EU is a good stimulus for the economy. “Establishing in the EU does require, among other things, that you actually start an operational organisation here and pay taxes here. Moreover, thanks to the buy-back policy, companies can borrow at favourable rates, giving them more scope for spending and investments. Ultimately, this is good for the economy. We have recently helped multinationals from Switzerland, the UK and Sweden to set up issuing institutions, including the associated legal and financial administration involved.”

To read the original article (in Dutch), click here.