Ålandsbanken Eu250m covered its biggest yet

Finland’s Ålandsbanken launched its largest ever covered bond on Tuesday, a Eu250m no-grow five year issue that the issuer’s head of group treasury said represented successful pricing and diversification, even if it had to pay up for the sub-benchmark size.

The deal was priced at 9bp over mid-swaps, in line with guidance, after leads Commerzbank and Nordea had gone out with initial price thoughts of the 10bp area.

Heli Huhtala, head of group treasury at Ålandsbanken, said the level was a great success considering where the issuer’s earlier deals had priced.

“If we look back a few years, at the levels where we printed our first transactions when we opened the Finnish pool, then we have come down more than 100bp, so that is amazing,” she said.

However, Huhtala acknowledged that Ålandsbanken had been forced to pay a premium due to its smaller size and the sub-benchmark size of the deal, and suggested that the issuer may change its approach in future.

“At the moment we are compromising with an extremely cautious and risk averse view on liquidity risk,” she said. “We don’t want to issue transactions that are too big, or have transactions maturing that are too big, in any single quarter. The fact that we are not in the benchmark size makes us pay so much more compared with our peers in Finland, who do not have such high quality cover pools.

“Because of this we will perhaps review our funding strategies in the future. That is something that we need to work on.”

The deal attracted around Eu300m of orders from 20 accounts. Investors from the Nordics were allocated 60%, Germany and Austria 36%, and Italy 4%. Central Banks took 32%, banks 31%, agencies 26%, and fund managers 11%.

“I think it went really well,” said Huhtala. “Our previous largest deal was Eu150m. With this issue we were able to grow the size and reach many new investors, so in that sense it is a success for us. That diversification is really welcome.”

The deal followed an investor roadshow that ran from 5 May to 12 May, visiting Helsinki, Frankfurt and Hamburg. Huhtala said one of the priorities of the roadshow had been explaining the business concept of the bank to new investors.

“We explained that we are a niche bank, targeting high net worth individuals and their companies, and we wanted to present the extremely high credit quality in our portfolio,” she said. “We had to explain the different nature of our bank from other Finnish banks.”

The new deal was issued from Ålandsbanken’s Finnish cover pool. These covered bonds and also those backed by a Swedish pool of the bank were upgraded from AA to AAA by S&P over the past month.

Tuesday’s issue may be followed by another covered bond, which could be issued from either the Finnish or Swedish cover pools and will most likely launch in the third quarter, Huhtala added.

“But we will see how it goes,” she said. “I must say that the extremely good liquidity situation in the market shows also in the banks finances. So our funding needs aren’t on the level that we had anticipated at the beginning of the year, even though we have been able to grow lending according to the business plan.”

Ålandsbanken opted to come to market now to refinance two covered bonds that will mature in September, Huhtala said, stating that the timing had nothing to do with market developments.

“We also wanted to wait to be able to present our really positive Q1 results before we went on the road,” she said.

While the deal came during a lull in euro primary market activity, following a back-up in rates, Huhtala said this wider volatility did not have an impact on the outcome.

“On one hand we heard some investors say that they would remain on the sidelines because of the volatility in rates,” she said, “but on the other there were investors who were really happy to see our deal, with its higher coupon and higher yield.

“For us the most important thing was to be able to place our transaction at the anticipated level, and we were able to do that.”