Nykredit moves closer to Swedish practices in latest krona SDO sale

Sep 27th, 2012

Nykredit Realkredit sold Skr5bn (Dkr4.39bn) of SDOs last week in a move designed to bring the Danish issuer’s Swedish krona bond sales closer to the model used by Sweden’s domestic covered bond issuers.

Nykredit’s Swedish krona issuance of SDOs out of capital centre H is used to finance lending in Sweden, but is under Danish legislation and sits alongside its mainly Danish and also euro issuance.

Morten Bækmand Nielsen, head of investor relations at Nykredit Realkredit, said that because of the relatively low volumes it issues in Swedish kronor compared with domestic covered bond issuers the traditional Swedish investor base has previously shown little interest in its issuance, with smaller issue sizes, a lack of liquidity and index ineligibility working against the Danish issuer.

However, Nykredit’s Swedish lending volumes have grown and for its latest issuance the bank decided to try to design a sale process that was a hybrid between its Danish auctions and Swedish market practices, which are dominated by tap issuances.

The issuer therefore put together a group of banks — including Danske Bank, Nordea and Swedbank alongside Nykredit Markets — to promise greater liquidity in the Swedish krona bonds, even if the initial issuance size is only around 10%-15% of typical Swedish covered bond benchmarks.

Bækmand Nielsen said that he was pleased with the result of the sale, which was completed last Tuesday (18 September), saying that although the bonds were priced at an attractive premium to local benchmarks, the level of demand was promising compared with the problems the bank has faced in finding Swedish buyers previously.

“It was very encouraging to see that it was three times oversubscribed,” he said, “and we saw good interest from investors that we haven’t seen in our bonds before.”

The move comes as Nykredit Markets has been building a presence in Sweden, having been appointed a primary dealer in Swedish government bonds in 2011 and become a market-maker in Swedish covered bonds.

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