Unlock the White House Watch newsletter for free
Your guide to what Trump’s second term means for Washington, business and the world
Czechoslovak Group, one of Europe’s largest ammunition makers, slashed its interest costs almost in half in a €1.8bn debt sale on Wednesday, in a sign of investors’ newfound enthusiasm for the continent’s defence industry.
The Prague-based group, which makes much of its revenue from supplying Ukraine’s armed forces, priced new five-year dollar and euro debt at yields of 6.5 per cent and 5.25 per cent respectively.
That marks a dramatic decline in borrowing costs since CSG’s most recent financing, a $775mn bond in November that the FT reported was sold to private credit firms at an interest rate of more than 11 per cent.
Investors said the company’s ability to access public markets — and at such favourable terms — demonstrated the recent rehabilitation of the arms industry in the eyes of many fund managers who had previously avoided the sector due to their emphasis on environmental, social, and governance principles.
The shift comes as financing Europe’s defence sector has become a priority for governments since President Donald Trump threatened to curtail US support for the continent.
“With the war in Ukraine people are now seeing it as a sector that actually is really important for the well being and safety of society,” said a high-yield bond investor at a large European asset manager. “It’s now easier to defend owning a name like this. And I struggle to think of a sector that’s going to be more compelling in terms of growth prospects than European defence.”
Stock investors have also shown a rush of enthusiasm for European arms markets. The Stoxx Europe 600 aerospace and defence index is up more than 45 per cent this year.
CSG began marketing a minimum of $500mn and €350mn of debt on Monday but increased the size of the deal to $1bn and €1bn respectively after receiving large levels of demand. The company said investors bid for $4.1bn and €5.6bn of the two bonds.
Over 40 per cent of the group’s revenue for the 12 months to December came from supplying Ukraine, while another 40 per cent came from the rest of Europe, according to the figures provided to bond investors.
While some smaller private funds have been able to offer financing to the industry, many funds have up until recently been hamstrung by ESG rules set by their investors that forbid lending, particularly to weapons and munitions manufacturers.
Recommended
CSG’s issuance comes as Donald Trump has stepped up pressure on Nato countries to increase defence spending to 5 per cent of GDP. Private investors have been touted as key players in funding Europe’s efforts to re-arm.
“CSG stands to benefit from increased defence spending, driven by ongoing geopolitical tensions in Europe, the need to replenish low stocks of ammunition as a result of the war in Ukraine and the anticipated continuous rise in defence budgets among Nato countries,” rating agency Fitch said on Monday.
