Swedbank launches ‘attractive’ government guaranteed tender

Swedbank has launched a cash any-and-all tender offer for the remaining stock of its publicly placed government guaranteed bonds to optimise the bank’s funding structure, with the bonds already having been refinanced.

Swedbank borrowed a total of Skr421.2bn (Eu48.52bn) under the country’s government guaranteed bank debt programme between autumn 2008 and July 2009, when it last tapped the funding source. It exited the programme in April 2010 following improvements to banks’ market funding, at the time announcing that it would strive to buy back its longest dated government guaranteed debt “as soon as there is more clarity around the regulatory framework regarding requirements on banks’ liquidity, and should market conditions allow it”.

It did so on Monday, launching an offer to buy back Eu1.94bn equivalent of its outstanding government guaranteed debt, taking in four issues: a Eu1.5bn 3.375% May 2014 benchmark, a Skr8.65bn 3.6% May 2014 fixed rate note (Skr1.926bn outstanding), a Skr1.75bn May 2014 FRN (Skr850m outstanding), and a Sfr150m 1.875% December 2013 issue [amended].

Barclays, BNP Paribas, JP Morgan and Swedbank are joint dealer managers. The offer expires on Monday, 17 June.

Ulf Jakobsson, head of funding at Swedbank, told Nordic FIs & Covered that the liability management exercise encompasses all of the bank’s outstanding public government guaranteed notes.

“The bank executed its last issuance under the government guarantee programme in the summer of 2009 and subsequently exited the programme in April 2010,” he said. “The repurchase will further optimise the group’s funding structure while maintaining a prudent approach to liquidity.

“Government guaranteed funding does not have a purpose in the group’s funding structure and the notes subject to repurchase have already been refinanced.”

A purchase spread of 20bp through the April 2014 Obl has been set for the euro issue, which Jakobsson said represented an attractive premium.

“The feedback we have received is that it is a generous offer and we expect a good take-up rate,” he said. “However, the take-up rate will be limited by “non-monetary” thresholds such as portfolio limitations, hold-to-maturity mandates and a lack of replacement assets.”

A liability management banker away from Swedbank’s exercise said that the take-out level of 20bp through Bunds on the euro note was surprising given that the majority of tender offers for euro government guaranteed bank debt have been at Bunds flat.

“It’s definitely very attractive,” he said. “The thing that jumps out at me is the reason why they feel a need to pay more than what other institutions have done recently.

“I don’t think it is necessary.”

If the tender offer does not achieve a participation rate above around 40%-45% for the euro deal then the purchase spread may be seen as “overly generous for not much gain”, he added.

A banker at one of the joint dealers acknowledged that the buy-back spread is attractive, but said that a tempting level is necessary given that the bonds are a very attractive asset for investors to hold and do not have long to mature.

“It reflects how serious they are about getting a good hit rate,” he added.

Most investors holding the bonds will be able to participate, he said, but the extent to which they can find a comparable reinvestment will be key to the take-up level.

“The premium is meaningful, but it’s a question of whether people will feel that it’s time to take the gains they’ve made and can find a reinvestment,” he said. “It’s slightly unchartered territory.”

The purchase spread on offer for the Swedish krona notes is 15bp through the May 2014 Swedish government bonds for the fixed rate issue and 52bp through three month Stibor for the FRN. A purchase price of 101.05% has been set for the Swiss franc note.