First dematerialised bond under Luxembourg law issued through LuxCSD
LuxCSD has issued and settled the first dematerialised security following implementation of the new law in Luxembourg in April 2013.
The Climate Awareness Bond with a notional amount of EUR650m and a six-year tenor issued by the European Investment Bank (EIB) was launched into the primary markets on 11 July 2013.
On settlement date, 18 July 2013, LuxCSD handled the dematerialised issuance and delivery-versus-payment (DVP) settlement in Euro central bank money during the night giving the issuer access to his funds at the central bank in the early morning. Joint bookrunners for the transaction were Bank of America Merrill Lynch, Crédit Agricole CIB, DZ BANK and UniCredit.
Aldo M Romani, deputy head of funding – EUR at the EIB, says: “In addition to providing socially responsible investors with a new product of higher liquidity, this issue has successfully tested innovative issuance and settlement features with the ultimate goal to provide more value to investors as European market infrastructure improves: better operational efficiency, lower risk, shorter settlement cycle and lower transaction costs upon the establishment of TARGET2-Securities, the common technical platform that the Eurosystem is building for the seamless provision of borderless securities settlement services in Europe.”
Patrick Georg, general manager of LuxCSD, says: “Supporting the first dematerialised bond issuance of the EIB is a further reference for LuxCSD in fulfilling its mandate to bring Luxembourg in line with international best practice to further strengthen the financial place as issuance and distribution hub in Euro central bank money. I am particularly pleased that such a prestigious issuer of the European financial market is the first to issue a dematerialised bond through LuxCSD.”
Thanks to direct access to central bank money which the EIB has in place, the issuance could be performed as “true” DVP between the EIB and the lead manager. The EIB only issued the bond when the lead manager paid for the bond resulting in an immediate credit of central bank money to the EIB’s account. With this structure, there is no risk that securities circulate in the market without the issuer receiving the payment of the borrowed amount. The risks involved in separating the delivery of securities from the payment to be made by the lead manager are completely eliminated in the LuxCSD process.
In 2013, Luxembourg adopted the law governing the dematerialisation of physical securities as well as the issuance of dematerialised securities, permitting electronic records to replace the currently predominant global certificate. Issuers benefit from the ability to receive information on the holders of their issued securities and from more favourable treatment of electronic securities under foreign laws, e.g. for tax purposes.
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