Nykredit eyes JCB, senior euro benchmarks in H2

Nykredit Realkredit is planning a benchmark euro Junior Covered Bond later this year and Nykredit Bank a benchmark euro senior unsecured bond, although issuance of the two instruments is likely to be lower this year than last, officials at the two arms of the Nykredit group said yesterday (Wednesday).

Nykredit Realkredit will issuer fewer Junior Covered Bonds this year than last, Nicolaj Legind Jensen, head of funding at Nykredit Realkredit, said at a presentation in London yesterday after the mutual group announced annual results on 7 February. In 2012 the issuer sold Eu2.7bn of JCBs, Eu900m of it in euros. Legind Jensen said that the issuer was very active last year mainly because of an acceleration in house price falls at the turn of 2011-2012, although these soon moderated.

The issuer has Eu1bn of JCBs maturing this year but only expects to refinance Eu750m of this, according to Legind Jensen. He said that the issuer is looking at issuing a euro benchmark JCB in the second half of the year, subject to market conditions and house price developments in Denmark.

Peter Engberg Jensen, Nykredit group CEO, said that the introduction of a two tier funding model under which the portion of mortgages above 60% will be financed through old-style Danish covered bonds would reduce the need for JCB issuance, while Nykredit also expects house prices to stabilise this year.

Legind Jensen noted that another Danish mortgage bank had begun issuing senior unsecured bonds and that Nykredit Realkredit had considered this, but he said it would stick with JCBs for various reasons, including pricing benefits.

Legind Jensen said that the issuer expects to launch at least one subordinated debt issue this year. He said that the issuer has in mind a Lower Tier 2 deal, but is not yet sure about the format and timing because of regulatory uncertainty.

Under the issuer’s capital objectives for 2019, it foresees having Dkr15bn of subordinated debt.

“Nykredit expects that the existing hybrid capital will be replaced in part or in full by subordinated debt within a few years,” it said in slides accompanying the presentation.

Engberg Jensen said that the bank had discussed contingent convertible (CoCo) securities with the Danish FSA. He noted that, as recently reported, the FSA was looking at quite a high trigger for CoCos, which would make them more difficult to sell. However, Engberg Jensen said that the FSA understood that the more difficult it is to raise supplemental capital, the more likely it is that the lending will be reduced, which the FSA is concerned about.

“They are moving,” he said, “but they are also conservative.”

Henrik Andersen, head of treasury at Nykredit Bank, said that the bank plans to issue a euro benchmark, probably after the summer break. This will contribute to a funding need of around Eu850m for 2013, which Andersen said was subject to the development of the bank’s deposit surplus, which rose to Dkr4.9bn last year.

Its funding need for this year is lower than 2012, when Nykredit Bank raised Eu1.2bn. This included euro benchmark and Swiss franc issuance, as well as private placements in a dozen currencies. Andersen said that the issuer would also like to launch a public Swiss franc issue this year.

Nykredit Realkredit will begin its latest quarterly covered bond auctions next week, when it will issue Dkr109bn and Eu2bn across a variety of ISINs.