SEB debut AT1 to test market, with scarcity, quality seen boding well

Nov 6th, 2014

Skandinaviska Enskilda Banken (SEB) is expected to launch its first Additional Tier 1 (AT1) issue shortly, in the US dollar market, after having begun a roadshow on Monday.

AppSEB_kungstradgardenThe deal will be only the second AT1 from Sweden, after Nordea sold the first Swedish AT1 on 17 September, a $1.5bn (Eu1.2bn, Skr11bn) transaction split into five and 10 year tranches. Nordea’s $1bn perpetual non-call five tranche set a coupon low for an AT1 of 5.5%.

However, since that time there has been no further AT1 issuance out of Europe, with the wider financial markets having soured after Nordea’s issue and then the outcome of the European Central Bank’s Comprehensive Assessment having been awaited.

Vincent Hoarau, head of FIG syndicate at Crédit Agricole CIB, said the deal should be something of a test of the market.

“The book size, its granularity, and more importantly secondary performance will give us a good idea of the real shape of the market,” he said.

SEB has mandated Bank of America Merrill Lynch, Goldman Sachs, JP Morgan, SEB and UBS for the transaction, which will have a 8% CET1 temporary write-down trigger at the group level (and 5.125% at the bank level). According to Fitch, SEB had a CET1 ratio of 16% at the end of June.

The Nordea issues are expected to be a key reference for SEB’s issue and Neel Shah, financials desk credit analyst at Crédit Agricole CIB, highlighted the similarities between the two credits as well as their strengths.

“SEB’s buffer to trigger is roughly the same as Nordea’s,” he said, “and they also have limited issuance to do – like Nordea, there will probably only be two in total from SEB.”

SEB said in a presentation that it has limited AT1 requirements over the coming years, and that the transaction represents an optimisation of its capital structure in light of upcoming redemptions of legacy hybrid Tier 1.

Shah said the deal should be well received, particularly given a domestic investor base that is keen to participate and a wider general lack of Nordic AT1 supply – away from the two Swedish banks, only Danske has brought AT1 supply from Scandinavia.

Nordea’s perp non-call five issue is trading at a yield of around 5.25%, according to Shah, while its perp non-call 10 is at around 6.1%. He suggested that, with an expected dividend yield on SEB equity at 4.25%, longer dated issuance might prove more attractive to investors.

“I expect SEB to come marginally outside Nordea, because Nordea is a slightly better credit,” he added. SEB is rated A1/A+/A+ and Nordea Aa3/AA-/AA-.

“The performance of the SEB AT1 will be more driven by general market sentiment, but the volatility of Swedish AT1s should be lower relative to peers given the stronger buyer base.”

A further supportive factor will be – as with Nordea – that the AT1 is investment grade-rated: Fitch has assigned the deal an expected BBB- rating.

Shah said that a size of $1bn-$1.25bn could be envisaged given the size of the legacy hybrid Tier 1 that is coming up for refinancing next year.

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