Aktia shrugs off weakness, cites diverse Eu1.5bn book

Aktia Bank issued a Eu500m seven year covered bond on Tuesday that overcame difficult market conditions to attract a diverse Eu1.5bn order book that represented the highest level of oversubscription on any benchmark for two weeks.

Leads Crédit Agricole CIB, JP Morgan, LBBW and Natixis launched the Eu500m no-grow seven year benchmark with initial price thoughts of the flat to mid-swaps area, tightening to guidance of 3bp through with books over Eu1.25bn. The re-offer was set at 4bp through with the final book in excess of Eu1.5bn.

The deal was one of two, alongside a Banco Popular Español Eu1bn 10 year, to reopen the market on Tuesday following a week in which new issues from CaixaBank and Nationwide Building Society fell short of expectations amid wider market weakness.

Acknowledging that the issuer had initially had concerns over market conditions, Timo Ruotsalainen, head of treasury at Aktia, said he was pleased with the end result.

“Considering the previous week in the market, with all the Austrian turbulence, it wasn’t 100% convincing that this was the best time to come to the market,” he said. “During last week and during the roadshow there was a lot of discussion about the market conditions, but towards Friday the situation had already seemed to calm down.

“Then on Monday when the leads went to have preliminary discussions with investors we got strong, positive feedback. We thought that if it the market was not exactly supportive it was at least stable, and thought that should be OK for our deal.”

Ruotsalainen said such conditions seemed to have no negative impact on the deal, noting that within half an hour from launch the order book had already reached the Eu500m target.

“We issued now because it fits with our refinancing plans,” he added. “We could have delayed the timing, but because there was this opportunity and this window, why not?

“In the end it was a really nice execution and a good deal, so we are really happy.”

Rob Chambers, FIG syndicate manager at Crédit Agricole, said that the Eu1.5bn order book was particularly positive considering the poor market backdrop and that last week’s two benchmarks had not been significantly oversubscribed.

He said that outstanding Aktia April 2018 paper was trading at around minus 8bp, bid, putting fair value for the new issue at around minus 5bp-4bp.

“It’s encouraging that it only required a negligible new issue premium, if any,” said Chambers. “We’re not quite back to the market we had, but things are looking better than last week.”

Ruotsalainen said the final price pleased both the issuer and investors.

“We have never tried to squeeze the lemon, we have always tried to at least be fair,” he said. “And even being fair, as I feel we have been, we achieved what we aimed for, if not even better.”

However, Ruotsalainen said the aspect of the deal he was most proud of was the final order book, which he said was well balanced and granular.

Banks were allocated 40% of the deal, asset managers 27%, central banks and official institutions 24%, insurance companies and pension funds 4%, and other investors 5%. Accounts from Germany and Austria took 46%, the Nordics 35%, the UK 8%, the Benelux 5%, and others 6%

Ruotsalainen noted central banks were among the last investors in the books.

“Clearly they didn’t want to be the one that is running the show,” he said.

The trade followed a roadshow that, Ruotsalainen said, sought to update investors on changes to Aktia’s covered bond issuance process. The deal is the third benchmark from Aktia Bank since it switched issuance of covered bonds from Aktia Real Estate Mortgage Bank to the universal bank.

“Since we are still a regular issuer, if not particularly frequent, we also take every opportunity to remind clients that we are still here,” he added.

“Particularly in the last couple of years investors have been mainly focussed on the banks that have been issuing, rather than the ones wanting to just meet and greet, so in that sense the roadshow was also worthwhile. Reminding people who we are was probably the most important thing.”

Ruotsalainen said that when the issuer was looking at the market it had the whole spectrum, from five to 10 years, open for consideration. He said that 10 years was the longest tenor available to Aktia, due to its cover pools and amortisation requirements in Finland.

“During the roadshow, seven year was the recommended maturity,” he said. “Five was a little short for some, 10 was a little long, but seven seemed to please most investors.

“We tried not to do anything very exotic. Covered bonds are our most important funding vehicle after deposits, so we don’t want to take any risks with brave and testing maturities.”

While noting that Aktia has a Eu200m senior issue redeeming in November, Ruotsalainen said that the issuer had no plans for further covered bonds this year.

“We are still very liquid, and in that sense our needs are limited,” he said. “But should our activity grow then that might provide an opportunity.”

Swedbank Hypotek meanwhile on Wednesday sold a £500m (Eu682m, Skr6.34bn) three year floating rate covered bond in sterling. Leads Nomura and RBC went out with IPTs of the 22bp area for a benchmark-sized issue and priced the FRN at Libor plus 20bp on the back of a £650m order book.

A syndicate official away from the leads said the outcome was a great result for Swedbank. He said that after heavy supply at the start of the year there was some fatigue in three year sterling FRNs. Deals that were launched at 18bp-19bp over were still quoted at around that level, he added, although he had not expected the 20bp level to be hit given that “it is increasingly hard to actually get a trade done”.

A syndicate official at one of the leads said he was pleased with the result.

“The market is tricky,” he said. “You feel you have the right name at the right price, but you can’t judge the depth of demand until you actually go out with it.”