Written by Marc Fassone
Published on 03.08.2022
Autostrade Concessioni e Costruzion was set up to help rebuild Italy’s infrastructure, which had been badly damaged during the Second World War. In 1963, it issued the first Eurobond in Luxembourg. (Photo: Shutterstock)
At the end of the 1950s, the explosion of Eurodollars accelerated the birth of the financial centre. The listing of the Autostrade Eurobond in 1963 brought Luxembourg into the closed circle of international financial centres.
It was the end of the 1950s. While banking activities were strictly regulated, the need for financing for reconstruction was exploding. Eurodollars were introduced to meet this post-war boom. This name was given to dollars held outside the United States. Thanks to the Marshall Plan, these dollars accumulated on the books of European banks and were used in international loan operations. Thus was born the Eurodollar market, which expanded rapidly after the return to external convertibility of European currencies at the end of 1958.
The idea of using these funds to issue dollar bonds outside the US soon took hold.
In 1963–the year of the country’s millennium–the first international bond issue in Eurodollars was launched. International? The issuer was Italian, the admission contract was governed by English law, the listing was in Luxembourg and the bond was denominated in dollars. The story goes that it was structured on behalf of Autostrade, a motorway concessionaire in Italy. Listed on the Luxembourg Stock Exchange on 17 July 1963, the loan was for $15m with an interest rate of 5.5% and a maturity of 15 years.
Luxembourg was chosen to issue this bond because of its flexible regulations. The legislation adopted at the end of the 1920s finally paid off and blossomed with the development of the so-called transnational savings market. The interest equalisation tax adopted in 1963 by the US reinforced the movement. Intended to curb the export of American capital, it increased the cost of foreign issues in the US and made Eurobonds all the more profitable.
At that time, Luxembourg’s prime minister was Pierre Werner. He was the spiritual son of Pierre Dupong, the father of the 1929 holding companies, who came from the banking world and whose leitmotiv was to attract them to the market. And like Dupong, he believed that “if investors do not find the advantage of a favourable or free regime in Luxembourg, they will easily find it elsewhere.”
Eurobonds opened up new prospects for the Luxembourg financial centre: local banks expanded beyond their domestic market to become international investment banks and foreign banks gained a foothold in the grand duchy. They were encouraged by the creation in 1965 of the financing holding company, a structure enabling international groups to structure their bond issues within an attractive tax framework. The securities of these loans were exempt from withholding tax.
After the Second World War, there were 10 banks in the country. By 1967, there were 26. By 1979, there were 100.
The 1970s were the years of petrodollars. This influx of liquidity launched a new market, that of Eurocredits. Loans intended to finance states which, following the end of the Bretton Woods agreements in 1971, opened the floodgates of indebtedness. That was a new market for the financial sector, which attracted even more players. And services. Banks started to create services to act as paying agents, quotation agents, depositaries. There was a need for lawyers to draft prospectuses and issue contracts, notaries and auditors.
The country, already fully committed to European integration, benefited politically from this boom. In 1970, PM Werner, considered to be the father of the financial centre, was entrusted with the chairmanship of a group of experts responsible for drawing up a plan for economic and monetary union for Europe. A clear recognition.
Originally published in French by Paperjam and translated for Delano