Arion €300m senior return confirms Icelandic progress

Iceland’s Arion sold a €300m (ISK41.9bn) three year senior unsecured bond on Tuesday, its second public euro-denominated issue, attracting mainly real money accounts and confirming the ability of Icelandic banks to access international markets at lower costs, according to the bank’s CEO.

Arion Bank in May 2015 sold a debut, €300m three year senior unsecured bond that was the first public euro-denominated transaction from an Icelandic bank since the financial crisis. Fellow Icelandic issuer Íslandsbanki then sold a €100m three year issue in July, before Landsbankinn sold a €300m three year in October.

“Over the past few years we have made a targeted effort to introduce Arion Bank and the Icelandic economy to international investors in order to gain better access to the international credit markets,” said Höskuldur Ólafsson, CEO of Arion Bank.

Ólafsson said Arion had been able to make good progress on this front as developments at the bank and in the Icelandic economy had generally been very positive.

“This will prove beneficial to those customers of ours who require international funding and important for the economy as a whole as it further confirms that Icelandic banks are able to access the international credit markets at a lower cost,” he added.

Following a three day European roadshow, Arion Bank leads Barclays, JP Morgan and Nomura launched the €300m minimum-sized three year issue on Tuesday morning with initial price thoughts of the high 200s over mid-swaps area.

Guidance was then set at the 275bp area on the back of over €500m of orders, before the deal was re-offered at 270bp and the size fixed at €300m. The book reached €540m at its highest extent, with over 70 accounts.

Eiríkur Magnús Jensson, head of funding at Arion Bank, said the issuer was particularly pleased with the quality of the order book, with fund managers and other long-only investors driving the book. He noted that no hedge funds participated in the deal, whereas they accounted for 14% of the book in Arion’s first euro benchmark issue.

Fund managers were allocated 66% of the new issue, insurance companies and pension funds 27%, banks and private banks 6%, and others 1%. Accounts from the UK took 44%, the Nordics 35%, Germany and Austria 7%, France 5%, southern Europe 4%, Switzerland 3%, the Benelux 1%, and others 1%.

Jensson said that the timing of the deal was affected by the political situation in Iceland at the start of the month, with prime minister Sigmundur Davíð Gunnlaugsson announcing his resignation on 5 April after being implicated in the Panama Papers. He said the deal would otherwise likely have been launched a week earlier.

Jensson added, however, that investors did not ask many questions on the subject during Arion’s roadshow.