SEB finds sterling ‘entry point’ via £250m, while euros mixed

Skandinaviska Enskilda Banken (SEB) sold an inaugural sterling covered bond yesterday (Thursday), a £250m (Eu353m, Skr3.29bn) three year FRN, and the issuer’s head of treasury management said that it would now look to return to the UK market each year.

SEB last tapped the sterling bond market in September 2013, when it sold a £300m seven year senior unsecured deal, having instead focused on the Swedish krona, euro and dollar markets for wholesale funding.

John Arne Wang, head of treasury management at SEB, said the new issue was an opportunistic one, but added that SEB had for a while been considering the sterling market as an add-on to the domestic and euro markets.

“Yesterday’s three year transaction served as an entry point,” said Wang. “Going forward, the sterling covered is a market we would like to be involved in when there is investor demand and spread levels working out in relative terms to the domestic market.

“And, at the moment, the levels are interesting, especially in the three year part of the curve.”

Leads Barclays and Deutsche priced the £250m (Eu353m, Skr3.29bn) three year FRN at 40bp over three month Libor, after announcing the deal with guidance of the 40bp area.

Wang said the new issue came flat to where the most recent Swedish covered bond was trading on the bid. He added that the deal had attracted strong follow-on demand after pricing and that the bond was trading at around the re-offer yesterday afternoon.

More than 20 accounts were in the final order book, and Wang said the deal attracted good participation from bank treasuries and real money accounts, as well as some investors that SEB would not normally reach in other markets. He also said SEB found good international demand, with 30% going to accounts outside the UK and Ireland.

Wang said that SEB had expected to print a deal of around £250m, as currently only smaller volumes are available in the sterling market. Swedbank Hypotek sold the last sterling benchmark, on 21 October, pricing a £350m three year FRN at 38bp over three month Libor, and syndicate officials said that available volumes in the sterling market would likely decrease with some accounts now done for year.

A syndicate official away from the leads said the 40bp starting point for SEB’s deal was appropriate as it left room for performance, with Swedbank’s issue seen as trading at re-offer.

“40bp feels fine,” he said, adding that the pricing looked “amazing” versus euros, with syndicate officials putting the spread equivalent to around 1bp through mid-swaps in euros. One said the tightest SEB would have been able to come with an equivalent euro trade was 5bp, with 7bp-8bp being more likely, noting that a SpareBank 1 Boligkreditt Eu1.5bn three year was priced at 10bp on Thursday of last week (5 November).

Wang noted that SEB had been absent from the sterling market for some time, but said he expects SEB to launch a deal in the sterling market each year going forward, as long as levels are competitive.

Four benchmarks totalling Eu3bn hit the euro market this week and met with mixed receptions.

National Australia Bank on Monday launched a dual-tranche, covered and senior unsecured, deal, attracting over Eu850m of orders for a Eu750m seven year covered bond tranche priced in the middle of IPTs at 32bp over mid-swaps.

BBVA then followed on Tuesday to build the biggest book for a peripheral issue since the summer break, taking Eu2.1bn of orders for a Eu1.25bn long five year and tightening the price by 5bp from IPTS, while on Wednesday Deutsche Hypo used a clear day – with France marking a public holiday and no other FIG issuance in the market – to take around Eu800m of orders for a Eu500m six year Pfandbrief.

HSH Nordbank then struggled to build a book for a Eu500m no-grow five year issue yesterday, despite offering a positive spread and attractive pick-up to secondaries, and priced in the middle of guidance at 5bp over mid-swaps.

Syndicate officials said, however, that conditions still looked favourable for issuance next week, attributing the limited demand for NAB’s deal to a lack of CBBP3 and ECB repo eligibility and HSH’s difficulties to investors’ concern over the credit rather than any market weakness.

Syndicate officials this morning saw BBVA’s deal 2bp-3bp tighter on the bid, with HSH marked 1bp wider yesterday afternoon and the week’s other deals seen at around re-offer.

“It has been a mixed bag this week,” said Robert Chambers, FIG syndicate manager at Crédit Agricole CIB. “At one end BBVA was very well supported and performed well, while other issuers were unable to tighten pricing and had more modest oversubscription.

“Overall, though, secondary markets and new issue premiums are stable, which sets us up nicely for more supply next week.”

Syndicate officials said they expect the rate of supply to be maintained next week, noting that CCDJ and Deutsche Bank SAE completed roadshows this week ahead of expected euro covered bond issues.

“The visible pipeline is not that large,” said Chambers, “but there is no real reason not to see next week as a promising window.

“Plus, with an ECB meeting in early December, non-farm payrolls and the Fed coming up, too, there is the potential for volatility next month, so next week could well be a good time to come to the market.”