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THE EUROPEAN INVESTMENT BANK, the Euromarket's leading borrower, this week signalled an important shift in its funding strategy with the launch of its first negotiated transaction.
Mandating Deutsche Bank and Merrill Lynch to lead a DM1bn-DM1.5bn Eurobond, the EIB said the deal's size, maturity and pricing would be determined after a period of price discovery with investors in Europe and Asia.
For the first time, an EIB Deutschmark bond will also be priced on a fixed reoffer basis, which the supranational lending institution has so far refrained from using in the German market.
EIB officials said the decison to use consensus pricing was part of a broad move towards greater diversification, flexibility and transparency in the bank's international borrowing operations.
With an annual funding programme of around Ecu 15bn, the EIB is by some measure the largest borrower in the Euromarkets, particularly in European currency markets where it has played a key role in the development of capital markets in Europe.
As part of this shift towards a more flexible funding strategy, the bank is also talking to advisers about the possibility of increased MTN issuance to enable EIB to take advantage of structured debt opportunities.
At the moment EIB does not have a Euro-MTN programme, although it operates a US domestic facility and a small Irish punt programme. No decisions have yet been taken on whether to set up an EMTN programme.
The decision to launch a negotiated transaction was hailed as a breakthrough by investment bankers, who believe the bank's reputation for competitive bidding and aggressive pricing was hindering its funding activities at a time of difficult and volatile market conditions.
By the end of June, EIB had raised around Ecu6.5bn out of a funding requirement of Ecu15bn for 1995. Bankers hope the launch of a successful negotiated deal will galvanise investor interest in the bank's paper.
In particular, the EIB is keen to develop a more active and regular communication with investors and investment banks with a view to refining still further the issuing and trading spreads of its bonds.
Following a week-long period of price discovery, the Deutschmark deal is likely to emerge early next week. Market sources point to a five-year transaction, with a spread in the low 20s...