Record krona Tier 2 offers Pohjola attractive alternative to euros

Pohjola Bank turned to the Swedish krona market to raise Tier 2 debt on Tuesday after having retreated from a planned euro issue in June, and in doing so sold a Skr3.5bn FRN that is the largest single-tranche Tier 2 in the Swedish market and which market participants said offered savings for the Finnish issuer.

The issuer had on 12 June announced the mandate for a euro Tier 2 issue, but decided not to proceed as market conditions deteriorated shortly afterwards.

Pohjola then resurfaced in the Swedish krona market on Tuesday, as JP Morgan and Pohjola – two of four leads on the euro mandate – joined Swedbank in going out with a 10 year non-call five floating rate note.

Tom Alanen, treasury manager, funding, at Pohjola, said that the issuer launched the deal at short notice when the opportunity became clear.

After building a book of more than Skr3.75bn the leads priced the Skr3.5bn (Eu370m) deal at 160bp over mid-swaps. According to Alanen, this was equivalent to roughly mid-swaps plus 130p in euros, which was satisfactory for all parties.

A syndicate official away from the leads said that Nordic Tier 2 paper was trading in the 150s or 160s over in euros, and that a new issue would come with a significant new issue premium.

“The demand was also very good,” added Alanen. “The deal size was even slightly larger than we had initially expected.”

A syndicate official at one of the leads said that the market had looked receptive to such an issue following Tier 2 trades for DNB in May and SBAB in June, with the Norwegian bank having sold the largest overall Tier 2 deal in Swedish kronor, Skr4bn split into a Skr3bn FRN and a Skr1bn fixed rate piece.

“The risk-off in Europe didn’t really push Swedish capital trades that much wider,” he said. “We have a very low interest rate environment here and if you can promote these strong names you can get a lot of traction, especially with the pick-up to some of the bigger domestic Swedish banks.”

SBAB’s Skr1bn 10 year non-call five issue was priced at 130bp and DNB’s 10 year non-call fives at 140bp. Pohjola’s Tier 2 issue has expected ratings of Baa1/A-/A.

With the DNB deal having been split into two tranches, Pohjola’s Skr3.5bn deal is the largest ever single-tranche Tier 2 in the krona market. The syndicate official said that whereas often the format of tranches is decided after books are opened, it was in this instance clear from the outset that an FRN would work best.

Around 35 accounts participated, with Sweden taking 82%, Finland 13%, Norway 3%, and Denmark 2%. Fund managers were allocated 87%, insurance companies and pension funds 9%, banks 2%, and others 2%.

“This is normally a binary market where you need the big names involved,” said the syndicate official, “but this showed that there is a much wider investor base.”

Pohjola’s Alanen said that the group is well on track with its funding for the year. With OP Mortgage Bank not yet having issued a benchmark covered bond this year, the group’s next benchmark would likely be a covered bond, he said, although the timing of any such issue is still open. Pohjola will most probably revisit the Japanese market with a senior issue at some point, he added, while continuing senior issuance in the other markets as well.