Focus on French social debt financing (2/2):
CADES: positioning on the financial markets
In a previous article, we looked at the process of debt recovery and the payment of resources to CADES. Each year, this organization must finance debt assumption, interest on its debts, and maturing loans. However, its resources are insufficient for this (see chart below), which is why CADES must seek the necessary financing on the financial markets. Here, we will look at its financing strategy on the bond market.
Source: CADES
What is its strategy?
CADES’ financing strategy is based on two main pillars: the desire to issue benchmark bonds with liquidity characteristics close to those of the best « signatures » and the diversification of its sources of financing. The latter involves issuing bonds in different currencies (dollar, Norwegian krone, euro, and recently renminbi), as well as diversifying financing maturities. CADES therefore uses several financial instruments such as TCNs, BTs, and commercial paper for the short term, and EMTNs and « traditional » bonds for the medium to long term. Since 2004, with the exception of 2011, two-thirds of the amounts raised each year have been for the medium to long term.
For 2016, the financing program forecasts a financing requirement of €23.9 billion. It breaks down as follows:
This positioning enables it to appear on the financial markets as a leading international issuer.
A look back at the 2015 program to illustrate this point
In 2015, CADES raised €14.9 billion in medium- to long-term debt. As of December 31, 2015, it held €9 billion in short-term securities. As in previous years, 2015 saw a desire to diversify the type and distribution of investors: mainly banks (41%), central banks (41%), fund managers (15%), and insurance companies (3%). Thirty-six percent of investors are from Asia, 6% from France, 3% from Germany, 25% from the United Kingdom, 4% from the Middle East, 13% from Europe, and 12% from America.
Review of its 20 years of action
Since 1996, CADES has amortized €110.2 billion in social debt and reduced France’s public debt by 6 points of GDP (the amounts amortized and the interest saved on these amounts representing 5% and 1% of GDP in 2015, respectively), enabling it to stay below the critical threshold of 100% (French public debt currently stands at around 96% of GDP).
Before it is likely to disappear in 2024, CADES still has €126.7 billion of social security debt to amortize. It should nevertheless be remembered that social debt (discussed in this article) represents « only » 6% of France’s total public debt in 2015 [2].
Notes:
[1] All information (except for note 2) is taken from the CADES website: http://www.cades.fr/index.php?lang=fr, http://www.cades.fr/pdf/agenda/fr/Conf_presse_Paris2016.pdf
[2] Source: INSEE http://www.insee.fr/fr/themes/tableau.asp?reg_id=0&ref_id=NATTEF08337
