Sparebanken Vest gets tight in covered, eyes more euros

Sparebanken Vest Boligkreditt on Wednesday sold the first Norwegian euro benchmark covered bond of the year, a Eu500m seven year that achieved tighter pricing than some market participants had expected, and an official at the Norwegian issuer said it may become a more frequent visitor to euros.

Leads Barclays, LBBW, Natixis and Swedbank launched the Eu500m no-grow seven year deal with initial price thoughts of the flat to mid-swaps area, before moving to guidance of 3bp through. The re-offer was then set at minus 5bp, with the leads building a final order book of Eu1.2bn and 70 accounts participating.

“This was a very good achievement,” said Egil Mokleiv, managing director at Sparebanken Vest Boligkreditt. “It went very smoothly, and according to plan.”

Mokleiv said there was a good reference point for the trade in a recent trade from Sweden’s LF Hypotek, a Eu500m seven year priced at 4bp through mid-swaps on Thursday of last week (16 April). A syndicate official from one of Sparebanken Vest’s leads saw the LF Hypotek April 2022 paper at minus 6bp on Wednesday.

“When our deal opened at minus 3bp things still looked very positive, so we were even able to land one basis point tighter than LF,” he said. “That was very good result for us.”

“We thought and hoped that the climate would still be good for our deal, as it was for LF’s, and it certainly seemed to be.”

Robert Chambers, FIG syndicate manager at Crédit Agricole CIB, said the transaction was an encouraging example of how covered bonds were well received this week despite a slightly nervous broader market backdrop.

“The Eu500m no-grow element certainly helped, but the transaction was a success whether you consider the pricing outcome or the oversubscription level,” he said. “Assuming there are no catastrophic macroeconomic events, then covered bond issuance should continue to be well absorbed by the markets.”

Mokleiv agreed that the deal was helped by its fixed Eu500m size, adding that it was also boosted by it being the year’s first euro benchmark covered bond from a Norwegian issuer.

“This is our sixth public euro deal, and they have all been Eu500m no-grows,” he added. “That is a suitable size for an institution of our size. We have been fortunate every time to get substantial oversubscription, and a wide range of investors.”

Banks took 45% of the deal, fund managers and asset managers 28%, central banks and official institutions 18%, and insurance companies and pension funds 2%. Accounts in Germany and Austria were allocated 42%, the Nordics 34%, the Benelux 14%, Asia 5%, the UK and Ireland 1%, and others 4%.

While praising Sparebanken Vest’s success in pricing inside LF Hypotek, a syndicate official away from the leads on Wednesday expressed surprise that the deal appeared to be unaffected by concerns regarding the Norwegian mortgage market and falling oil prices.

“Apparently the Norwegian mortgage market is of no concern to investors,” he said, “which is worrying, because it shows that fundamentals may be out of the picture in this market.”

Mokleiv agreed that such concerns did not impact the execution, but said the issue had come up in conversations with investors in recent months.

“We discussed the development in house prices and what has been driving these prices, and how things will go forward,” he said. “We think it will fade off. It has come to a level where prices will be lower and we have seen that in the last month.

“What is essential is that while activity will fall, government economics will not be influenced very much,” he added. “This does not depend only on the lowering oil price, because it is the revenue from Norway’s oil fund that goes into public expenses.”

He said that most people realise that Norway is not only about oil.

“When you explain this, people see that we also have a possibility to boost other activities that have suffered because of a lack of skilled workers,” he said. “This can be an opportunity for some other sectors that have been in the shadow of the oil industry.”

Sparebanken Vest Boligkreditt has been a regular issuer in the euro market since making its public debut in 2010, having launched one Eu500m deal per year. Mokleiv said it opted to come to the market now in particular as its first deal will mature in June, meaning for the first time in the euro market the issuer will have refinancing needs, whereas in the past it has only sold new deals based on purchases of portfolios from its parent bank.

“We also issued in euros now because the Norwegian market is not large enough to provide funding for a company of our size,” he added. “We of course do plenty of deals in the Norwegian market, but we think it is essential to have access to the euro market, too, and to show our face regularly.

“We will definitely continue to do one public issue per year at least, maybe more now our deals are maturing,” he added. “We think this deal is a good basis for continuing issuance in the euro market.”

DNB Boligkreditt this week increased its debut sterling covered bond, a five year FRN initially launched on 9 February at £250m (Nkr2.96bn, Eu349m), to £500m with three privately placed taps.

The FRN, which was first increased on 3 March by £50m, was this week increased by £50m in a trade led by Credit Suisse, £80m via RBS, and £70m via JP Morgan. Each of the three deals was priced at 27bp over three month Libor, 1bp than the original outstanding was priced at 28bp over.