Let’s go back to the context of the time.
We are at the end of the 1950s. While banking activities are strictly regulated, financing needs for reconstruction are exploding. It was to respond to this post-war boom that the Eurodollars appeared. Dollars held outside the United States were designated by this name. Dollars which, thanks to the Marshall Plan, are accumulating in the books of European banks and which will be used in international loan operations. Thus was born the Eurodollar market, which experienced rapid expansion after the return to external convertibility of European currencies at the end of 1958.
The idea of using these funds to launch bonds in dollars outside the United States quickly emerged.
In 1963 – the year when we celebrate the millennium of the creation of the country – the first international bond issue in Eurodollars was launched. International? The issuer was Italian, the admission contract was governed by English law, the listing place was in Luxembourg and the bond was denominated in dollars. The story will remember that it was structured on behalf of Autostrade, a motorway concessionaire in Italy. Listed on the Luxembourg Stock Exchange on July 17, 1963, the loan concerns an amount of 15 million dollars with an interest rate of 5.50% and a maturity of 15 years.
And it is Luxembourg that will be chosen for the issuance of this bond for the flexibility of its regulations. The legislation adopted at the end of the 1920s finally paid off and flourished with the development of what should be called the transnational savings market. The Interest Equalization Tax, also adopted in 1963 by the United States, reinforced the movement. Intended to curb the export of American capital, it increases the cost of foreign issues in the United States and makes Eurobonds all the more profitable.
Favorable regime
At that time, the Prime Minister was Pierre Werner. The spiritual son of Pierre Dupong, the father of holding companies 29. Coming from the world of banking, his leitmotif was to attract them to the market. And like Pierre Dupong, he believes that if “investors do not find the advantage of a preferential regime or freedom in Luxembourg, they would easily find it elsewhere”.
Eurobonds open up new prospects for the marketplace: local banks are spilling over from their domestic market to become international investment banks and foreign banks are gaining a foothold in the Grand Duchy. They were encouraged by the creation in 1965 of the financing holding company, a structure allowing international groups to structure their bond issues in 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. They were 26 in 1967. And 100 in 1979.
The 1970s are those of petrodollars. This influx of cash is launching a new market, that of eurocredits. Loans intended to finance the States which, following the end of the Bretton Woods agreements in 1971, opened the floodgates of indebtedness. A new market for the Place which attracts even more players. And services. Banks began to create services to be paying agents, listing agents, custodians. There was a need for lawyers to draft prospectuses and emission contracts, notaries and auditors.
The country, already unreservedly committed to European construction, is politically benefiting from this development. In 1970, Prime Minister Pierre Werner, considered 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 recognition without appeal.
Next Wednesday, go back to 1970 for the first Investors Overseas scandal.