While Belgium's economy is thriving, supporting its complex regional make-up has driven up debt levels. To this end, the country's debt agency recently launched two long bonds, with record-breaking results. David Wigan reports.

Anne Leclercq

Over the past decade, Belgium has posted one of the fastest cumulative growth rates in the eurozone, amid strong business confidence, low unemployment and high levels of household wealth. However, it is also one of Europe’s most indebted countries, with a debt-to-gross domestic product (GDP) ratio of 102%, compared with an EU average of 85%. A primary reason is the country’s complex and fast-changing political landscape. 

Belgium’s GDP per capita is about 17% higher than the EU average, driven by an open, diversified economy. Given its strong economic performance, successive Belgian governments have worked to reduce the country’s debt, which was as high as 137% of the GDP in the 1990s. That period was marked by the creation of a fully federated Belgian state, formed of three regions: the Flemish of the north, where Dutch is the dominant language; the southern Walloon region, where French is spoken; and the Brussels-Capital region.

“During that period there was a delicate political balance and the government incurred high levels of debt as it expanded infrastructure and supported the economy across all regions,” says Anne Leclercq, director of treasury and capital markets at the Belgian Debt Agency (BDA).

Debt reduction

Belgium reduced its debt to 87% of GDP in 2007, but the level rose again during the financial crisis. In 2014 it was 107% of GDP. Still, low benchmark interest rates have helped keep costs under control. Debt servicing costs were about 3.5% of GDP in 2008 but had fallen to 1.93% of GDP 10 years later. In addition, since 2014 the country’s debt agency has worked to lengthen the average maturity of its debt through the issuance of ultra-long bonds. The current average is 9.7 years, compared with six years in 2010.

Belgium is a frequent issuer and has built its issuance programme on the basis of a pre-determined annual auction calendar. However, it also makes space for syndicated issuance when the occasion arises. One such occasion arose in January.

“Markets went through a volatile period at the end of 2018, so it was a surprise when this year got off to such a flying start,” says Ms Leclercq. Amid positive sentiment, primary bond markets opened, with governments and corporates rushing to take advantage. “We knew that in January there would be a lot of supply, and we wanted to be sure we weren’t at the back of that queue. We were also motivated by our anticipation of uncertainty around Brexit in March and the fact that Belgium is due to hold elections in June.” 

The BDA appointed BNP Paribas, HSBC, JPMorgan and Natixis as lead managers and launched a 10-year deal on the morning of January 8. Markets opened on a positive note, and initial price thoughts were set at 11 basis points (bps) over mid-swaps. With indications of interest exceeding €15bn, books soon opened with price guidance of mid-swaps plus 10bps. As demand built, guidance tightened to 9bps and then 8bps over mid-swaps. After an incredible morning, books eventually closed with orders of €28.5bn, making it the biggest ever order book for a Belgian government bond.

Going for it

“It was a real blowout,” says Ms Leclercq. “The order book size was something I have never seen, and we also limited the new issuance premium to 3bps, a proof of the quality of the book.” Following the deal, other countries piled in, with Ireland, Portugal, Spain and Italy tapping the market for funding.

However, the BDA was not finished; as markets continued to roar ahead, officials made a decision to come back again, this time with a 30-year bond.  

“We saw demand in the secondary market for 30-year bonds, but with that maturity you have to make sure you catch the window, so if we were going to issue a long bond we needed to do it very soon,” says Ms Leclercq. “It’s not really our normal way of doing things but we decided ‘let’s just go for it!’.”

Belgium appointed Barclays, Crédit Agricole, JPMorgan, NatWest Markets and Société Générale as joint leads on the transaction and on January 29 Belgium sold a €5bn bond due June 2050, the largest long-end benchmark from Belgium since 2004. The bond paid an annual coupon of 1.7% and was priced at a 44bps over mid-swaps, implying a re-offer yield of 1.75%. More than 308 investors took part in the transaction with the total amount requested exceeding €27bn at the final spread. By the end of the day, the agency had fulfilled more than one-third of its borrowing requirements for the year.

“It wasn’t just us – we saw records broken on sovereign transactions across Europe,” says Ms Leclercq. “However, it really was a remarkable period; totally unexpected given the state of the markets and the negative mood in 2018.”


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