In December 2017, a new European bond issuing platform, the European Primary Placement Facility s.a. (eppf), designed to facilitate low-cost capital markets funding for borrowers of any size, announced its first issue, a one million EUR two-week commercial paper transaction from DZ bank via ABN Amro and DZ bank.
eppf provides borrowers (both corporates and public-sector entities) with a technical and legal platform for issuing bonds, where the process required for the issuance is largely standardised. Most of the setup work is completed when the client joins, and does not need to be repeated for subsequent transactions, saving both on time and cost. eppf extends functionalities that are currently only available to large sovereign issuers to all borrowers of whatever size, at a fraction of the usual cost, providing access to the capital markets for issues from 10 million eur upwards.
eppf, which is regulated by the Luxembourg Financial Sector Supervisory Authority (CSSF), complies with the key principles of the capital markets union and is the only capital-markets-as-a-service (cmaas) platform of its kind. LFF spoke to robert koller, executive chairman at eppf, to find out more.
HOW IT STARTED
The story of eppf started five years ago, following strong demand from international investors for European corporate credits and requests from banks to develop pan-European standardised products. Robert Koller explains: “EPPF is a market-driven initiative. A very broad ecosystem of stakeholders, including central banks, investment banks, auditors, law firms, service providers and rating agencies has fed into EPPF.”
Luxembourg is the only country that has a licence for securitisation vehicles, which fits us very well.
Initially, the project was focused purely on creating a standard for private placements in Europe. However, soon after the launch, the scope was enlarged. “We found out that we can do much more than just private placements. We can provide public and private offerings, repackagings and short-term commercial paper, as well as long-term bonds in different currencies, maturities and structures,” continues Robert Koller. The name of the platform, european primary placement facility, reflects the scope of the company and the market it serves.
WHY LUXEMBOURG?
eppf did extensive research to identify the most suitable jurisdiction in which to set up the platform and concluded that Luxembourg was the only one to offer the right legal and regulatory framework and the relevant tools, such as compartment companies. “Luxembourg is the only country that has a licence for securitisation vehicles, which fits us very well. Luxembourg also has excellent products available in the marketplace. The cooperation with the regulator, the CSSF, was outstanding.”
NOT A MARKETPLACE
eppf does not include a trading platform but provides a complete infrastructure for bond issuance, settlement and delivery. This includes a standard but flexible documentation, links with the paying agent, custodian, clearing system, exchanges and many others.
There are many different steps one needs to take before issuing a bond. I think we mapped it out to around 70 to 80. We have incorporated many of those in a value chain and digitalised and created a completely hassle-free environment,” adds Koller.
We don’t compete with Stock Exchanges, we’re complementary to them.
eppf does not disinter mediate the banks. Companies and other borrowers come to eppf through the banks and the investors that acquire the bonds through the banks as well, which means that the core function of the banks – origination and placement – is still a key part of the structure. When asked about eppf ’s relationship with Stock Exchanges, Robert Koller says:
“We don’t compete with stock exchanges, we’re complementary to them. For example, we work with the Luxembourg Stock exchange as well as other exchanges so that our bonds can be listed on them.”
The documents produced by eppf are all electronic and machine-readable, which facilitates secondary trading: machine-readability allows computer-trading, for example. “Also, the standardisation of the documents themselves helps to create transparency and comparability because then the focus can be on the underlying credit and not so much on the individual details or finesses which stem from different advisers being involved on different issues.”
THE SECURITISATION LAW
eppf found the securitisation law helpful because it allows the creation of compartment entities.
“Compartment entities allow us to create a shared treasury infrastructure for companies and our clients. Instead of each company incorporating its own subsidiary, paying directors, auditors, and so on and so forth, we can use the compartment structure to standardise and share the costs among all clients and therefore create a regulated environment where companies can issue with their own name, but in a much more efficient way,” explains Robert Koller.
Clients
The main idea of eppf is to create a unified market for the issuance of bonds in Europe and beyond and to be a vehicle that actually practically implements the Capital Markets Union. Rollout of the platform is currently focused on Europe, but Robert Koller says that there is a lot of interest from other parts of the world.
Change is slow, but it is certain that it will come, and everybody will benefit from this. We hope to be one of the catalysts of this change to come.
The interest from overseas issuers is very valuable because we can be a conduit for foreign issuers – American, Chinese, Japanese, Australian companies – that are looking for funding in Europe, be it for hedging purposes, to borrow euros locally or for opportunistic funding in different currencies. In addition in the context of Brexit, we provide a bridge to the European capital market for UK companies.”
Change is slow, but it is certain that it will come, and everybody will benefit from this. We hope to be one of the catalysts of this change to come.
CAPITAL MARKETS UNION
eppf started before the Capital Markets Union came up as a topic. “Having 27 countries that all look at home markets is not efficient if you compare it to the US where you have an internal market of 300 million people. Europe counts 500 million, but the internal market isn’t there because you have a German capital market, a French capital market, a UK capital market and so on. There is of course interaction between them, but this interaction can increase substantially to the benefit of issuers, investors and their advising banks. Change is slow, but it is certain that it will come, and everybody will benefit from this. We hope to be one of the catalysts of this change to come,” concludes Koller.
