Introduction section BTP Futura, the 100%-retail Government Bond financing Italy's economic recovery
BTP Futura, the 100%-retail Government Bond financing Italy's economic recovery
Btp Futura, the only Government Bond reserved exclusively for individual savers (whether natural persons or similar entities), was issued for the third time from Monday 19 to Friday 23 April 2021.
This new issue, which is the first of 2021, is in line with the commitment to broadening the base of retail subscribers to public debt by involving them in the ongoing efforts aimed at tackling the consequences of the epidemic crisis and relaunching Italy's economy. It will finance the measures designed to promote economic recovery from Covid-19 and the costs of the vaccination campaign.
This operation is in continuity with the previous ones and aims at effectively managing Debt in emergency situations; the idea of linking Public Debt to specific objectives was introduced in 2020 and proved to be very popular with small savers and private savers in general. Indeed, with the issuance of the BTP Italia last May and the two issues of BTP Futura in 2020, Italians decided to invest around € 25 billion in the country's recovery.
The features of the third issue of BTP Futura are the following:
- 16-year duration
- Double loyalty bonus linked to the growth of the national economy during the lifetime of the bond
- Pre-determined fixed rates increasing over time in 4 steps (a fixed rate for the first 4 years, which will increase a first time for the next 4 years, a second time for the next 4 years and, finally, a third time for the remaining 4 years of the life of the bond before maturity)
- No purchase commission during placement
- Single redemption at maturity
- Preferential taxation: 12.5% on returns and exemption in case of inheritance
Duration of the bond
Compared to the two previous issues in 2020, the respective durations of which were 10 and 8 years, this third issue will have a longer duration – 16 years – and a higher bonus than the previous issues.
TWO- TRANCHE FINAL BONUS FOR A BOND THAT GROWS WITH THE NATIONAL ECONOMY
In continuity with previous issues, a 'loyalty bonus”, is also envisaged for the third issue, which is linked to the growth of the national economy during the lifetime of the bond. As opposed to the past, this time the bonus is a double bonus paid at two different times. An intermediate bonus is envisaged, which will be paid at the end of the first eight years to investors who have held the bond since placement, with a minimum of 0.4% and a maximum of 1.2% of the capital invested, equal to 40% of the average annual growth rate of nominal GDP recorded from the year of issue of the bond to the year preceding the end of the first eight years of life of the bond. Once the bond matures, namely in the 16th year, investors who will have held the BTP Futura from issue to maturity will be paid a final bonus consisting of two components:
- the first will be equal to the remaining 60% of the average annual growth rate of nominal GDP recorded in the first eight years with a minimum of 0.6% and a maximum of 1.8% of capital invested;
- the second will be calculated on the basis of nominal GDP growth from the 9th to the 16th year of the life of the bond with a minimum of 1% and a maximum of 3% of the capital invested.
The loyalty bonus paid in the 16th year for those who will have held the bond uninterruptedly from issue to maturity will therefore be the sum of the two components. In summary: investors who purchase the bond at the time of placement and hold it until maturity (year 16) will receive a total loyalty bonus equal to the sum of the intermediate bonus and the two components of the final bonus, thereby ranging from a minimum of 2% to a maximum of 6% of the capital invested.
Simple structure with fixed rates increasing over time
The step-up coupon structure is confirmed: witness six-monthly nominal coupons calculated on the basis of pre-established rates that increase over time; a fixed rate for the first 4 years, which will increase a first time for the next 4 years, a second time for the next 4 years, and a last time for the remaining 4 years of the bond's life.
The series of pre-fixed and increasing coupon rates for this third issue of BTP Futura was announced to the public on Friday 16 April 2021 and confirmed on 23 April 2021 at the closing of the placement:
- 0,75% from year 1 to year 4;
- 1,20% from year 5 to year 8;
- 1,65% from year 9 to year 12;
- 2% from year 13 to year 16.
Commission-free purchases at banks, post offices and via home banking
The placement of the bond took place on Borsa Italiana's MOT platform (the electronic market for Government Bonds and securities) through the dealer banks, namely Intesa Sanpaolo S.p.A. and Unicredit S.p.A., and the co-dealer banks, namely Banca Akros S.p.A. and Banca Sella Holding S.p.A. On top of banks and post offices, it was also possible to subscribe to the bond through the various home banking platforms, if trading was enabled.
The ISIN code that identified the bond during the placement period is IT0005442089.
The bond was subscribed to at par (100) without any commission charges. Moreover, no purchase commission was charged to subscribers on the days of placement, and the yield of the bond will be subject to the usual 12.5% preferential taxation on Government Bonds and exemption from inheritance tax, , as with other Government Bonds.
No ceilings or allocations were provided for, in order to allow demand to be met in full, starting with a minimum lot of EUR 1,000.
Operators provided simplified digital procedures for booking BTP Futura when opening a bond account or making a 'physical' purchase at a branch.
The results of the third issue of BTP Futura
132,296 contracts were concluded during the third issue of BTP Futura, which took place from 19 to 23 April 2021, for an equivalent value of € 5,477.083 million.
During the placement period, about 60% of the contracts concluded amounted to less than € 20,000, while contracts up to € 50,000 accounted for about 86% of the total. The average size of contracts was € 41,400.22. The information gathered from Dealers, Co-Dealers and other intermediaries suggests that retail investors' participation was higher than that of private banking (57% and 43%, respectively). According to estimations, within the share subscribed by retail investors, about 66% placed the order through the branches of the banking networks (either by physically going to the branch or by placing the order from remote) and about 34% did through home banking. Almost all orders came from domestic investors (around 97%).
Details on the composition of the demand can be found in the press releaese of the Italian Ministry of Economy and Finance.
Negotiability and liquidity on the secondary market
The bond can also be transferred before maturity at market conditions. The structure with fixed coupons increasing over time makes the bond less subject to a reduction in market value in the event of a future rise in interest rates as compared to a normal BTP with fixed coupons with the same maturity. Adequate liquidity is provided to the bond on the secondary market so that savers can sell or buy the bond during its lifetime under any market conditions.
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- Results of the third issuance of the BTP Futura
- Announcement of the guaranteed annual coupon rates of the BTP Futura
- Announcement available term sheet and technical note
- Announcement of the third issuance of BTP Futura from 19 to 23 April 2021
- BTP Futura-Third Issuance-Information for market participants
- BTP Futura Third Issuance - Termsheet Update of the Public Debt Management Guidelines 2021
- Focus on Btp Futura- Ministry of Economy and Finance website (italian version)