Swedbank reopens euro FIG with Eu750m senior success

Swedbank reopened the euro FIG market yesterday (Thursday) with a Eu750m seven year senior unsecured fixed rate issue that attracted Eu1.9bn of demand and was priced at the tight end of guidance, and bankers said other issuers would be encouraged to come to market.

Rabobank also issued yesterday, selling a Eu1.5bn five year floating rate note. The last benchmark senior issuance had been from UBS on 7 May, while this week was the third in a row without any euro benchmark covered bond supply.

“Swedbank’s deal is clearly the reopener of the euro market,” said a syndicate official at one of the leads. “It is the one the market was waiting for.”

Leads Deutsche, JP Morgan, Natixis, Nomura and Swedbank went out with initial price thoughts of the low 50s over mid-swaps before the leads set guidance at 47bp plus or minus 2bp, attracting more than Eu1bn of orders in the first hour of bookbuilding. The lead syndicate official said this allowed them to print at the tight end, building a final order book of Eu1.9bn.

“There was some level of uncertainty opening up the market again,” said Kimberly Bauner, a member of the long term funding team at Swedbank, “but we were very pleased with how it went.”

She said Swedbank issued yesterday because it was keen to come to market before a public holiday on Monday closes some jurisdictions and ahead of further Swedish holidays in June, and added that the issuer was encouraged after seeing comparable deals perform well over the last week.

“We had seen a return of stability over the prior couple of trading sessions,” she said. “But we were very much aware that it is a volatile market these days, so choosing the right day to execute is key right now. We knew it was a fairly clear day economic data-wise, and the news regarding ECB front-loading of purchases was a further positive for issuance.”

The lead syndicate official said other issuers will now be looking closely at the market, noting that Swedbank’s execution showed they will not necessarily need to pay a significant premium. Citing NAB January 2022s and Pohjola March 2022s quoted at 40bp-41bp, bid, he estimated fair value for the new issue to be 41bp-42bp.

“This clearly demonstrates that despite the recent uncertainty if you’re a strong name and a core issuer you don’t need a huge new issue premium to complete a successful deal because the demand is still there,” he said.

“There is a lot of cash out there that needs to be put to work, so you can put together a well oversubscribed deal with a minimum premium.”

The deal also tightened 2bp on the break.

Germany was allocated 23% of the bonds, France 22%, the UK 17%, the Nordic 15%, the Benelux 13%, Asia 7%, and others 3%. Asset managers 60%, banks 25%, pension funds and insurance companies 10%, central banks 3%, hedge funds 1%, and others 1%.

With the new issue, Swedbank has completed each of the benchmark trades scheduled under its funding plan for the year, said Bauner. She added that the issuer does not anticipate launching further benchmarks in the short term, and will likely continue with private placements.

“This means we can be more nimble and opportunistic,” she said. “As we look at the year ahead we see some benefit to pre-funding our requirements as opposed to waiting. Given the market is fairly volatile, we are unsure as to where credit spreads will go over the second half of the year. We felt it was right to go ahead when we saw a good opportunity.”

While noting that the euro senior unsecured pipeline remained slim, Robert Chambers, FIG syndicate manager at Crédit Agricole CIB, said Swedbank’s outcome shows demand is there for euro deals.

“If this stable backdrop continues then more issuers will look at following Swedbank back into the market,” he said.

Chambers said that although the news of the ECB’s front-loading boosted sentiment this week, its long term approach has not changed and hence the impact will likely be shorter-lived.

“The risk now is maybe that we experience another similar correction to the one we have just seen,” he said. “This supports the idea that you should be looking to do issues sooner rather than later, especially on the back of these deals.”

Nordic issuers would also be supported by a lack of recent supply from the region, Chambers added.

Meanwhile, Skandinaviska Enskilda Banken (SEB) priced a $1bn (Eu899m, Skr8.36bn) five year senior unsecured issue wider than initial price thoughts on Wednesday after an unanticipated slew of supply hit the US high grade market, although the Swedish issuer was able to achieve an oversubscribed book at the wider level.

On what they expected to be a light day in the dollar market, leads BAML, Barclays, Deutsche, Morgan Stanley and SEB announced IPTs of the high 80s over Treasuries with a view to pricing the new issue in the low 80s, according to a banker involved in the deal, who noted that secondaries had been performing strongly.

However, a deluge of higher yielding financial institutions and corporate issuance that was opportunistically announced that morning, such as a $5bn Goldman Sachs issue, as well as some interest rate volatility on the back of US figures, put paid to these plans, and the May 2020 deal was ultimately priced at 90bp over.

“Early investor reaction was slow but responsive, then once competing supply fully hit the market investors became increasingly price sensitive,” said the banker, noting that SEB’s issue was the tightest amid the glut of issuance, much of which was offering chunky new issue premiums.

At the 90bp level the book totalled some $1.2bn comprising around 60 accounts.

“We decided not to downsize but to be responsible to the investors and pay what was necessary to print a $1bn transaction,” said John Arne Wang, head of treasury management at SEB.

He noted that although not as attractive as expected, the pricing was competitive versus levels available in Europe.

SEB has not issued a benchmark covered bond outside its home krona market since October 2013, when it sold a Eu1bn seven year, but Wang said that the issuer expects to return to euros this year.