City of Munich issues a “Munich city bond”

BayernLB and Stadtsparkasse savings bank provide support in issuing social bond

Munich - In its meeting on 22 January 2020, Munich city council ruled with a broad majority in favour of issuing a “Munich city bond”.

The volume of the city bond will likely be between EUR 100 million and EUR 120 million with a term of ten years. Based on the current market situation, the coupon will probably provide a positive yield of approximately 0.20 to 0.30 percent. The actual yield will depend starkly on demand and the current interest rate on the day the bond is issued, because while the necessary preparations are ongoing, market movements may cause conditions on the capital market to change considerably by the planned issue date.

The transaction will be managed by BayernLB (technical lead) and UniCredit (structuring of the sustainability component) as mandated lead arrangers and supported by Stadtsparkasse München as co-lead.

The city bond is scheduled to be traded on Munich Stock Exchange, with the exact issue date to be announced in good time in the first quarter of 2020. In addition to institutional investors, it is intended that private investors, and therefore the citizens of Munich, will be able to purchase the bond through the branch network of UniCredit subsidiary HypoVereinsbank and Stadtsparkasse München. No fees will be charged for either the purchase of the bond during the marketing phase or its custody at HypoVereinsbank and Stadtsparkasse München. Details will be available to investors at the banks’ branches when the bond is issued.

Use of funds from the “Munich city bond”

The city will use the funds from the issue of the “Munich city bond”, which are part of the universality of revenue, primarily to exercise its rights of first refusal, thereby protecting tenants in rented accommodation in Munich. To this end, the issue will be structured as a social bond.

“The instrument of a city bond, which also qualifies as a social bond or sustainability bond, provides a good additional source of finance for the city, particularly in view of the high investment volume. At the same time, the city bond offers citizens a good opportunity to help their community,” according to city treasurer Christoph Frey.

“As the first European city to issue a social bond, Munich is blazing a trail in social and sustainable municipal finance,” said Dr Michael Diederich, Spokesman of the Management Board at HypoVereinsbank. “Munich residents can enjoy a return while at the same time doing something good for their city.”

“With its city bond, Munich is setting new standards for the financing of social and sustainable investments by municipalities,” commented Michael Bücker, member of the BayernLB Board of Management. “Not just investors but every citizen of the city will benefit. We are proud to support this flagship project in our home city.”

“We welcome the Bavarian capital’s move to issue a social bond with this voluntary commitment and to use the proceeds mainly to buy homes, thereby protecting tenants in rented accommodation. We are convinced that this project will serve as a model for many other municipalities, while also offering investors a yield from a top issuer,” Chairman of the Board of Directors at Stadtsparkasse München, Ralf Fleischer, applauded the financing scheme by the city of Munich.