Well-pitched SEB Eu1bn sevens end euro, Swedish droughts

SEB launched the first Swedish euro benchmark covered bond in nearly a year on Monday after feeling that it was “due time” to return to what is its most strategic foreign market, said an official at the issuer, with a more acceptable cross-currency basis swap also spurring the deal.

The last Swedish euro benchmark covered bond before Monday was a Eu1.5bn five year for Stadshypotek on 14 March 2012. Monday’s deal was also the first euro benchmark from any jurisdiction in nearly three weeks.

Skandinaviska Enskilda Banken’s last public euro covered bond was a Eu1.25bn 10 year that was launched at the end of March 2011, when Crédit Agricole CIB also acted as joint bookrunner.

“The deal was extremely well received given the ongoing lack of supply and scarcity value surrounding the signature,” said Viet Le, FIs, covered bonds and ABS syndicate manager at Crédit Agricole CIB. “The timing was decisive for the pricing outcome as the issuer returned to the market ahead of potential competing supply and after three weeks of starvation in covered bonds.”

On Monday the issuer priced a Eu1bn no-grow seven year at 15bp over mid-swaps after leads Barclays, BayernLB, Crédit Agricole CIB, RBS and SEB built an order book of Eu1.5bn, excluding lead interest.

The transaction represents SEB’s emergence from an exclusive focus on the Swedish krona market last year in terms of covered bond issuance, according to John Arne Wang, head of treasury management at SEB, with the issuer responding to strong domestic investor appetite and calls for actions to further improve the liquidity of Swedish krona benchmarks.

“In 2012 we only issued covered bonds domestically to expand the size of our benchmarks to levels comparable with those of our larger peers in Sweden,” he said. “That was an active strategy on our part.”

The euro-Swedish krona basis swap also made the euro market prohibitively expensive compared with the domestic market in 2012, said Wang, with the difference between pricing for a five year deal in euros and Swedish krona standing at around 50bp at the beginning of the year.

“Due to an exaggerated basis swap, funding in euros was literally impossible,” he said. “It normalised over the course of the year, and the diminishing spread made it less unfavourable to issue in euros.”

SEB also considers euros to be its single most strategically important market after Swedish kronor, and typically wants to issue a benchmark once a year to meet investor demand and maintain a liquid benchmark curve as long as economics do not differ significantly from the domestic market, according to Wang.

“It was due time to return,” he said, adding that the lack of recent supply of euro benchmark covered bonds in general encouraged the issuer to come to market.

“Overall we are happy with the pricing and we feel it shows the strong position of SEB covered bonds in the market,” he added.

At 15bp over, SEB’s deal came flat to what is already a tight secondary market curve, according to the leads. Outstanding Eu1bn 2.625% October 2017s and Eu1.25bn 4.125% April 2021s were at around 5bp over and 16bp over mid-market, respectively, before yesterday’s deal, they said.

“At mid-swaps plus 15bp, the issuer achieved a very competitive pricing level versus peers’ recent transactions in softer market conditions,” said Le.

Nordea Bank Finland sold a Eu1.25bn seven year at 16bp over on 8 January that was at 17bp ahead of the announcement of SEB’s deal on Monday morning.

Bankers away from the leads also had a positive take on the deal, saying that the pricing was “spot-on”, with one noting that it was a good choice to opt for a seven year maturity.

Comparing the pricing of SEB’s euro deal with the cost of issuing domestically is difficult, according to Wang, given that there is not much of a liquid market for SEB Swedish krona issuance beyond five-and-a-half years. The re-offer spread on Monday’s euro issue was equivalent to 49bp-50bp over Stibor versus SEB’s longest domestic benchmark, June 2018s, which is trading at 38bp over Stibor, he said.

“So in comparison the additional spread we had to pay was definitely within what I would describe as the acceptable range,” he said.

Germany and Austria took 61%, the Nordics 16%, the UK 13%, France 4%, the Benelux 3%, Switzerland 2%, and others 1%. Banks were allocated 66%, fund managers 20%, central banks and SSAs 8%, and insurance companies 6%.

“With great market momentum, strong investor demand and no other competing supply, the order book developed swiftly and reached Eu1.5bn in less than two hours,” said Alex Sönnerberg, Nordic DCM Origination at Crédit Agricole CIB. “It was a granular order book with over 80 investors participating, primarily driven by German/Austrian and Nordic bank treasuries, as expected.”