The first bonus designed to finance the defense expense of Europe has been issued today by BPCE, a French bank and has received a remarkable investment interest. The Financial Group is selling a promissory note for an amount of 500 million euros as a “European Defense Bonus”, with a format similar to green bonds: that income is destined for a specific purpose, unless the money will be used to finance military companies instead of projects respectful of the environment
The entity seeks to rise to the great interest that there is to invest in this type of assets, after the European countries to increase its military expenditure, and has received a strong investment interest, upon receiving requests for 2.7 billion euros, almost four times the offer: 2.7 billion. This product illustrates a radical change in the attitude towards the financing of the industry from the. The broadcast, five years, has been closed at an interest rate of 85 basic points above the risk -free type, currently in 2.29%.
Defense companies are now one of the most attractive bets in European markets, since manufacturers seek to satisfy the billions of euros of additional orders that come from governments. Even some sustainable funds that before had the sector in the blacklist are joining the initiative.
This same week, the – has launched a quoted fund that allows investing in a selection of actions of the defense sector, which follows the evolution of an index of this sector.
“The commitment to allocate more money to this type of expenses reflects the enormous task that Europe has ahead,” said Maureen Schuller, director of strategy of the Financial Sector of ING GROEP NV. “I think that in the future we will see more similar projects, with the intervention of banks to support the financing of Europe’s defense ambitions.”
The initial forecasts on the price of the bonus issued today point to a level between 105 and 110 basic points on the type of reference for the five -year bonus, according to the source.
With the Ukraine War on the border of the European Union and the US President Donald Trump threatening to withdraw their support, community leaders have rushed to develop a military deterrence force strong enough to resist Russia.
In June, NATO members of the Gross Domestic Product after Trump repeatedly criticized their European allies for investing less in security.
Investor frenzy
Asset managers and banks compete to benefit from the wave of spending and investments. This has promoted the rise in the actions of the defense companies, which are among the five best performance of the year in the Euro Stoxx 600 reference index.
Even companies with a tangential link with the defense are attracting a multitude of possible lenders.
The BPCE bonus is the last attempt to take advantage of this frenzy. The bank has already multiplied its financing to the defense industry, and by more than seven the financing to exports of French arms products, according to a presentation to investors.
The sale occurs in due to political uncertainty. The country’s financing costs have increased compared to their peers since Prime Minister François Bayrou announced that he will convene a motion of trust next month. Nervousness has also expanded the differentials of French banking bonds.
Although the BPCE said that it is inspired by the existing standards of the bond market, it has not tried to classify its issuance of defense debt as “sustainable bond instruments” according to the widely used guidelines of the International Capital Market Association (ICMA).
Instead, BPCE uses a new frame designed by the Euronext French Stock Exchange, called “European Defense Bonds Label”.
This was developed with “Key interested parties of the defense and security financing ecosystem, including financial institutions, investors, issues and other market participants,” according to a July document.
It is not clear how many investors with sustainable investment mandates will go to the auction. The BPCE defense bonus comes with the commitment that the Bank will publish an annual assignment report verified by an external reviewer, similar to the standards of green debt information.
“This means that BPCE has a clear opportunity to finance defense without any criticism. If you have bought it, you cannot complain later because you finance the industry of the weapons,” said Luke Hickmore, Aberdeen’s fixed -income portfolio manager.
