In order to overcome the unprecedented crisis linked to COVID-19 and to support the national economy in securing state loans guaranteed by 7 banks in the Luxembourg financial center in favor of companies, the Luxembourg State managed to close a 2.5 billion euros loan at a negative rate within 24 hours, thus benefiting its treasury.
The country's institutional investors contributed a quarter of the total amount. The other shares were subscribed mainly by renowned investors from the euro zone, the United Kingdom and Switzerland.
The loan is made up of two parts, which is a first for Luxembourg. The first part, with a volume of EUR 1.5 billion, has a maturity of 5 years and the second one, with a volume of EUR 1 billion, has a maturity of 10 years.
The average weighted rate of the two parts is -0.035%, which means that the operation resulted in a surplus to the benefit of the State Treasury. Despite the unprecedented situation, this means that Luxembourg continues to benefit from excellent financial conditions thanks to its "AAA" rating from the main international financial rating agencies.
The Ministry of Finance emphasizes that the operation has received very positive reactions and has been largely oversubscribed. As a result, it was quickly closed. BCEE, BIL, BGL BNP Paribas, Société Générale and Deutsche Bank contributed to the transaction as lead managers. The loan will be listed on the Luxembourg Stock Exchange.
"The success of this loan will enable the State to strengthen its liquidity cushion, while ensuring the implementation of the measures of the economic stabilization program to deal with the COVID-19 crisis. Both the large excess demand and the negative interest rate are a sign of investor confidence in Luxembourg, one of the few countries with a "AAA" rating, and in its ability to overcome the current crisis in a sustainable manner", said Pierre Gramegna, Minister of Finance.
The operation does not involve any risk for the country's public finances. Before the crisis, public debt only reached 20% of GDP. This loan should bring it down to between 23% and 25%, which is still far from the maximum of 60% imposed by the European Union's Stability and Growth Pact.
Sources:
Press release from the Ministry of Finance on 22.04.2020
Paperjam: "Luxembourg got 2.5 billion in 24 hours", 22.04.2020
