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France’s first European Defense Bond offering to raise 1 billion euros for its defense companies was vastly oversubscribed, with two-thirds of investors coming from outside its borders.
France’s public sector investment bank (Bpirance) said in a statement that the bond, which matures in five years, has received strong support, with a final order outstanding of more than 3.8 billion euros, almost four times the offering price.
In a sign of growing pan-European support for the initiative, 66% of the allocation went to investors outside France, with 22% from Nordic countries and 20% from southern Europe. Investors from the Benelux region, the DACH countries (Germany, Austria and Switzerland), the UK and Ireland also participated.
“This ‘European Defense Bond’ initiative aims to strengthen strategic autonomy and competitiveness within the defense industry. This is an important milestone for Bpifrance and the entire European defense ecosystem,” said Nicolas Dufourcq, CEO of Bpifrance.
He added: “We are committed to supporting innovative companies and strengthening Europe’s defense capabilities, with a particular focus on SMEs and mid-sized companies that play a key role in the value chain of this sector.”
The proceeds from the issue will be used to finance or refinance loans exclusively for defense sector actors under Bpifrance’s Def’fi program. The program provides tailored financing to small and medium-sized enterprises supplying the defense sector and supporting companies within France’s defense industrial and technological base.
The issuance comes as cash-strapped EU member states seek rapid and large-scale rearmament amid a credible threat from Russia.
Dispute over joint and several debts
The European Commission has submitted plans that up to 800 billion euros could be invested in defense by the end of 2010. However, most of the cash is expected to be extracted from member states’ coffers through the activation of state escape clauses in their Stability and Growth Pacts.
The EU executive has so far allowed 16 countries to deviate from strict fiscal rules to spend money on defence.
But France’s debt already far exceeds the ceiling set by the EU, and it is seeking more innovative financing options, such as so-called defense bonds.
This is vehemently rejected by some of the so-called frugal countries, which oppose joint debt and argue that the experience of post-COVID-19 recovery plans, where repayments have ballooned due to sharply rising inflation and interest rates, shows that joint debt is not sustainable.
Brussels also proposed Proposal to abolish red tape For defense companies, it includes measures to improve access to finance.
This is due to the EU’s environmental, social and governance (ESG) standards, which rank companies on their sustainability efforts and are a focus of investors and other companies.
Based on the EU taxonomy, which provides a bloc-wide classification system for sustainable activities, with the aim of directing investments to activities most needed for the green transition. Defense is considered “dirty” Or unsustainable.
This means defense companies and their suppliers may find it harder to secure loans, energy supplies and services, including transport, and small and medium-sized enterprises (SMEs) may be penalized as a result.
The European Defense Bond is just one of the new products that Bpifrance has developed to secure financing in this area.
Last month, it launched a new fund open to retail investors with a minimum deposit of 500 euros to support unlisted defense startups, SMEs and mid-cap companies. The target size of the fund is 450 million euros.