“Companies from outside the euro zone are setting up companies or vehicles to issue debt in euros and thereby qualify for the ECB’s purchase programs.”
The European Central Bank has been hoovering up the corporate bonds of a growing number of multinational firms that are not based in the Eurozone or the EU. Those firms include the finance divisions of Swiss behemoths Nestlé and Novartis, US giants Coca Cola and John Deere and UK-based British American Tobacco and WPP. It also includes the Hong Kong-based, Cayman Islands-registered conglomerate CK Hutchison Group.
How easy is it for large non-EU firms to qualify for the ECB’s corporate bond buying scheme — known officially as the Corporate Sector Purchase Program (CSPP)? As the Spanish financial daily Cinco Dias reports, all you need to qualify is:
- An investment grade credit rating. The ECB still refuses to buy junk-rated bonds. But as it says, that could change at any time.
- A subsidiary based in a Euro-Area country, usually one where you pay next to nothing in corporate taxes, such as Luxembourg and the Netherlands.
- To issue bonds in euros. More and more companies are now doing this, lured by the promise of virtually free ECB money.
€224 Billion and Counting
The ECB has been buying up corporate bonds of investment-grade companies in Europe for just over four years, now amounting to €224 billion. That doesn’t include the €35 billion of additional corporate bonds the ECB has bought as part of its pandemic emergency purchase program (PEPP).
The biggest beneficiaries of the ECB’s bond buying have been (in descending order) French, German, Italian, Spanish and Dutch firms in the energy, infrastructure, telecommunications and automotive sectors. Foreign subsidiaries of huge non-EU corporations are also eligible and have been since day one, as long as they meet the aforementioned three criteria.
What is new is the fact that many global companies are hungrier than ever for virtually free central bank money. And they’re shopping around for it.
“Companies from outside the euro zone are setting up companies or vehicles to issue debt in euros and thereby qualify for the ECB’s purchase programs,” says Fernando García, Capital Markets director at Société Générale. “Some US companies have already done it. Although the Fed has similar purchase programs on offer, they prefer to have all options on the table, so as to get the best prices.”
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Nick Corbishley 