Banking for 7 billion and 7 million

GLOBAL INVESTOR 3.06 Basics — 38
European
public sector
bond issuers
The European public sector offers very high (AAA) credit quality bonds. Besides EUR, GBP and
USD, issuers regularly bring bonds in the currencies of all other industrialized countries to the
market. In recent years, many major issuers have also issued bonds in emerging market currencies,
allowing investors to play medium-term currency trends without taking credit risk. Despite topquality
ratings, public sector bonds offer attractive yield pickups over government bonds.
Dr. Jeremy James Field, Research Analyst Fixed Income
The European public sector for bond issuance is large in size and
diversified in nature. Figure 1 shows that several European agencies
have more bonds outstanding, by value, than a sovereign issuer
like Switzerland, for example. Institutions that have either a public
sector mission or policy role characterize the sector. The bonds
generally benefit from explicit or implicit guarantees at either the
sovereign or sub-sovereign level. The guarantees mean that the
credit quality of the issuers’ debt is very high, usually equal
to that of the sovereign or sub-sovereign providing the guarantee.
Table 1 shows some of the largest European public sector issuers by
country or region, together with their credit ratings. The largest
issuers in the sector are typically development and special purpose
banks, the biggest being the European Investment Bank (EIB),
which is a multilateral development bank, and the Kreditanstalt für
Wiederaufbau (KfW) (explicit government guarantee) of Germany.
Many of these development banks were set up to finance the rebuilding
of Europe after World War II, like KfW, or are the result of
European integration, like EIB. Institutions specializing in refinancing
government obligations are also significant bond issuers. The two
largest are Caisse d’Amortissement de la Dette Sociale (CADES)
(explicit government guarantee), which refinances and amortizes
French social security debt, and German Postal Pension Securiti-
zation (GPPS), which securitizes receivables stemming from pensions
payable to employees with civil servant status of the privatized
successor companies to the German Federal PTT. State infrastructure
funding, particularly the financing of the rail sector, is
another area with large bond issuance. For example, Réseau Ferré
de France (RESFER) owns the French railway infrastructure, while
ASFiNAG (explicit government guarantee) of Austria finances the
country’s motorway and highway infrastructure. Export financing
agencies also represent another group with significant bond issuance.
Eksportfinans (EXPT) is the leading credit institution in
Norway and the country’s largest international borrower. It exercises
a legal monopoly in providing government-supported export
finance, and also makes loans to local government in Norway. The
Österreichische Kontrollbank (OKB) (explicit government guarantee)
acts as an agent of the Republic of Austria, administering
export guarantees and offering export credits.
The EIB as an example
The sovereign governments of industrialized countries issue most
of their debt in their local currency, and some sovereign issuers like
the USA, France, Japan and Switzerland have no foreign currency
debt. In contrast, European public sector institutions issue debt in