Sector Report - SSA: Belgian regions in capital markets

  • The Belgian regions and communities are increasingly tapping the capital markets for bond issuance and are active issuers in the ESG bond market. In this publication we provide a brief overview of this group of issuers and their capital-market activities and initiate coverage on the four bond issuers.
  • Belgium is a federal state composed of three communities and three regions. The three regions are: Flanders, Wallonia and Brussels-Capital. The three communities are: the French Community, the German Community and the Flemish Community. The territories of the regions and communities overlap. Both the French and Flemish Communities have authority in Brussels-Capital and the German-speaking Community is located within Wallonia. The institutions of the Flemish Region (Flanders) and the Flemish Community were merged in 1980.
  • Regulatory treatment: Bonds issued by the Belgian regions qualify as Level 1 assets under the liquidity coverage ratio (LCR) regulation. A risk weight of 0% (standardized approach) is applied to Belgian regional bonds under the capital requirements regulation (CRR). Bonds of Belgian regions receive a stress factor of 0% for spread and concentration risk under Solvency II. Bonds issued by the Belgian regions are eligible for ECB asset-purchase programs.
  • The Belgian regions in capital markets: Capital-market funding of the Belgian regions is comparable to that of the Spanish regions and even higher than that of the French regions. The Belgian regions have 486 bonds outstanding in a total amount of EUR 37bn.
  • Relative value: Bonds of the Belgian regions offer an attractive spread-pickup of up to 30bp to BGBs, in particular at short-to-medium-term maturities, in our view. Furthermore, WALLOO bonds offer additional spread pickup to FLEMSH bonds due to the lower credit rating of Wallonia (Moody’s A2) compared to that of Flanders (Moody’s Aa2). FLEMSH bonds are rated one notch higher than the Belgian sovereign. Due to their strong linkage to the sovereign, Belgian region bonds move in tandem with Belgian sovereign bonds (BGBs).

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