Swedbank gets 50% GG hit rate

Roughly 50% of investors holding government guaranteed bonds targeted by Swedbank for repurchase participated in a tender offer that closed on Monday, a take-up rate that an official at the issuer said made for a worthwhile exercise.

The tender offer was for the remaining stock of the bank’s publicly placed government guaranteed bonds, around Eu2bn equivalent across four issues, and was launched on a cash any-and-all basis last Monday (10 June).

“All in all we bought back a bit more than 50%,” said Gregori Karamouzis, head of debt investor relations at Swedbank, “which is a take-up rate that we are quite happy with.

“Similar tender offers have been in the range of 25%-30%, up to 50%, so we see this as being on the upper side of the norm.”

The participation rate was highest for a Swedish krona fixed rate tranche, with investors holding 95% of the outstanding amount (Skr1.926bn (Eu224m)) of a 3.6% May 2014 issue tendering bonds. Next in line was a Sfr150m 1.875% December 2013 issue, with some 68% of investors returning bonds. The largest tranche, a Eu1.5bn May 2014 issue, achieved a hit rate of 47%, and a Skr1.75bn May 2014 FRN a 41% participation rate (based on an outstanding amount of Skr850m).

Barclays, BNP Paribas, JP Morgan and Swedbank were joint dealers, and had fixed the repurchase spread for the euro notes at 20bp through Bunds, seen and acknowledged as an attractive level by bankers on and off the transaction. Similar government guaranteed buybacks have offered Bunds flat, noted a liability management banker away from the joint dealers.

“All in all Swedbank will be satisfied, although they could have achieved this at a slightly lower price,” he said. “The result isn’t surprising.”

Karamouzis said that the bank offered an attractive price, and that this helped incentivise more investors than would have otherwise been the case, not least because the targeted bonds had less than one year to go before maturing.

“That makes it a bit trickier,” he said, “and the take-up rate could potentially have been higher if the remaining term to maturity had been longer.”

Above all, however, there were issues like portfolio limitations, hold to maturity classifications and lack of replacement assets of similar high quality that prevented some investors from participating in the tender offer, said Karamouzis.

Nonetheless, the response to the tender offer was such that the bank will be able to book a small net gain, according to Karamouzis.

“The buyback saves us on fees we have to pay to use the government guarantee facility, and even with the attractive purchase spread and administrative costs the exercise was a worthwhile one,” he said.