Handelsbanken hits coupon low in AT1 ‘museum piece’

Feb 20th, 2015

Svenska Handelsbanken launched its inaugural Additional Tier 1 (AT1) issue on Wednesday, a $1.2bn (Eu1.05bn, Skr10bn) perpetual non-call six deal that achieved the lowest coupon on a US dollar AT1 and attracted $4.7bn of demand.

SvenskaNew300The announcement of Handelsbanken’s mandate last Friday came amid a first wave of AT1 supply in 2015, including a $750m 5.5% perpetual non-call five Swedbank debut. However, Bengt Edholm, head of treasury at Svenska Handelsbanken, said that the issuer was not concerned about this.

“We knew that for a very long time there has been demand for this type of product from Handelsbanken, so we didn’t really think about other issuers’ supply,” he said. “And everyone knows that we will not be a repeat issuer, that this will be a one-off, so that it would be sort of a museum piece when we came.

“$1.2bn of AT1 is beneficial in the capital structure, so it makes sense to do such an issue at some point in time,” he added. “Our overall view is that we want to combine the lowest risk with best in class capitalisation, and this transaction should be seen in that context.”

The issuer held a roadshow at the start of this week before leads Deutsche, Goldman Sachs, JP Morgan and SG opened books on Wednesday.

“We had very good momentum on the roadshow,” said Edholm. “We received really very strong commitments from investors that we met, so that when we started off yesterday we had an order book that was already well oversubscribed as these IoIs became firm orders, and then the book kept on building.”

Strong demand enabled the leads to tighten from initial price thoughts of the 5.5% area to a coupon of 5.25%.

“This is 0.25% inside Swedbank’s initial pricing” noted Pascal Decque, financials credit analyst at Crédit Agricole CIB. “It is worth underlining that this is the first AT1 with three investment grade ratings, and with no further supply in the foreseeable future.

“Swedish banks are among the best capitalised banks in Europe – Handelsbanken has a CET1 ratio of 20.4% – and offer the best cushions for AT1 investors.”

Edholm said that the issuer chose the dollar market because it provided a better level than euros, although he said that this also enabled the issuer to offer paper in a currency that more of its regular investors can buy.

“The target was to issue tighter than anyone else,” he said, “and that’s always our aim when we go out in the market because we have the strongest credit metrics, we are the most stable bank, we have managed through the financial crisis with an annual growth in equity and dividends of 15%, very stable quarter by quarter, we have the lowest loan losses, etc, etc. And of course when you print an AT1 that difference is expected to be much, much bigger than when you print a covered bond.

“And we achieved this with a very broad margin, so we were very happy with the price. But when we go out to the market – whether it be with a covered bond or an AT1 – it is also very important that the investors get a good performance in the bonds, and that was the case here, too.”

The $4.7bn order book comprised some 250 accounts.

“We are extremely happy with the order book and the investors that came in,” said Edholm. “I must say that the quality of the order book was amazing if you look at the names that were in it. We had investors who are very familiar to us, but also some new ones that we have never seen in any of our books before, which was very encouraging.

“We have spent some time in Australia, issuing covered bonds and senior bonds there, and we saw some of those guys coming into this book, too. So it’s a testament to the very long term investor work that we have done over many years that we could find investors for this product in so many different jurisdictions.”

Meanwhile, SBAB Bank AB will debut in AT1 in its domestic Swedish krona market, and has mandated Citi and Swedbank as bookrunners. The transaction is expected to be rated BB+ by Standard & Poor’s and launched after investor meetings.

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