Hungary’s OTP Mortgage Bank has issued a Eu750m three year floating rate covered bond, but syndicate officials were split on the significance of the deal. Meanwhile, issuers are said to be awarding mandates in a bid to be ready to tap the market upon signs of a sustainable recovery. [Updated.]

OTP Mortgage Bank yesterday (Wednesday) priced its covered bond at 300bp over three month Euribor via BNP Paribas. The French bank was one of three that worked with the issuer on a series of investor meetings conducted in July; Citi and Morgan Stanley were the other banks (click here for more about the investor meetings).

A syndicate official at BNP Paribas said that the new issue was driven by a large reverse enquiry order, with order books opened to catch additional demand. Guidance was set at the 300bp over area.

The proceeds from the sale will be used to refinance a Eu750m deal that matured on 11 July, he said, declining to disclose information about the distribution of the bonds.

A syndicate banker away from the transaction said that its size struck him as a very good outcome, and that the floating rate format and the price indicated the issue would have been targeted at credit investors rather than “old fashioned” rates buyers.

“It sends a statement that people are comfortable enough with emerging market risk, with eastern Europe not as a scary a place as it used to be,” he said, adding that this was at least partly a function of “other [sovereigns] falling rapidly”.

But another syndicate banker suggested that the deal could in the main have been retained by the issuer or its parent, OTP Bank, with portions perhaps having been placed with end investors. He said that it was unrealistic to think otherwise given prevailing market conditions, citing the absence of a “normal” syndicate group as backing up his view.

He did not take issue with the pricing, however, saying that the 300bp over level seemed appropriate.

The other syndicate banker said that it would make sense if the issuer or a related entity had retained the bonds, or portions, for possible use as repo with the European Central Bank.

The issuer did not respond to queries about the distribution of the bonds by the time The Covered Bond Report went to press.

UPDATE: A syndicate official at BNP Paribas said the deal was not retained by the issuer at all.

Planning ahead

OTP’s transaction is the second covered bond in floating rate format to be sold this week, after Bayerische Landesbank on Tuesday priced a Eu250m 18 month issue, as torrid market conditions – and the holiday season – have precluded new benchmark supply.

But new mandates are being awarded as issuers, either before or after going on holiday, seek to put together lead management groups, according to syndicate officials.

One said that although there was “obviously no market now”, a handful of issuers had mandated investment banks for covered bonds.

“Yes, some issuers are being optimistic and are right to do so,” he said. “The market is killing itself, and something has to happen. At some point there will be positive headlines, and investors are cash rich.

“Things are still extremely challenging, although issuers are optimistic and I am optimistic.”

He identified the second to last week of August as a possible period for which issuers were aiming to be ready to “pull the trigger”.

Another syndicate banker said he had a “pile” of mandates, some of which have been outstanding for some time, and that it would surprise him if deals were being mandated today or over the next few weeks.