Reactive Stadshypotek £300m FRN shows sterling possibilities

Stadshypotek sold a £300m three year FRN covered bond on Monday, proving that the sterling market is an appealing option for issuers and printing at a tighter price than could have been achieved in the domestic market, according to bankers.

The Svenska Handelsbanken subsidiary’s new issue was the first sizable covered bond to be brought to market since Singapore’s DBS sold a $1bn three year issue on 30 July, with supply subsequently drying up as the continental European summer holiday period took effect.

Leads HSBC, Nomura and RBC set the price of the £300m (Eu424m, Skr4.067bn) three year FRN in the middle of initial price thoughts, at 28bp over three month Libor, having gathered indications of interest approaching £300m. The books closed at above £300m.

“The price is a good level relative to other sterling transactions that we’ve seen, and a good level versus the other currencies they could look at,” said a syndicate official at one of the leads. “Overall, this is a good opportunistic trade.

“It was reactive to the market and a good result.”

Syndicate officials both at and away from the leads noted that recent £400m three year FRNs printed by Royal Bank of Canada and Bank of Nova Scotia, on 14 July and 28 July, respectively, were also priced at 28bp.

Lead syndicate officials said the price represented a low single-digit concession versus the issuer’s peers, and noted the deal had performed well, tightening by 1bp on the day of launch.

While noting that bid-offer spreads can be rather wide in the cross-currency basis swap market, Alex Sönnerberg, Nordic FIG DCM origination at Crédit Agricole CIB, said the new issue came around 3bp cheaper than Stadshypotek’s domestic benchmark curve.

“Historically the domestic Swedish covered bond market is typically cheaper than the international market,” he added. “But right now, that has changed, and Stadshypotek’s deal confirms that.

Another banker meanwhile said that the deal showed that funding is available in sterling, but added that it is not clear that further supply will follow.

“While it is a decent result, it is not the most resounding endorsement for other issuers that they should follow Stadshypotek into the sterling market,” he said. “But, that said, in a holiday market where it is hard to get focus, it is encouraging that they managed to get a deal finished, and others might follow.

“You don’t rely on so much granularity in sterling trade as in euros, so if you can get a handful of investors on board a deal can still work well.”

Accounts from the UK and Ireland were allocated 85% of the deal, with 15% going to accounts elsewhere. Bank treasuries took 51%, fund managers and insurance companies 26%, and central banks and official institutions 23%.

Stadshypotek’s most recent benchmark covered bond was a $1bn (Skr8.76bn) five year issue sold in April, with its last public sterling deal a £250m three year FRN in September 2012. A lead syndicate official noted that the deal made Stadshypotek the first Swedish issuer to have printed two covered bond benchmarks in sterling.