Austria’s Raiffeisen-Landesbank Steiermark inaugurated a public sector covered bond programme yesterday (Wednesday) with a Eu500m three year deal that an official at the issuer said went “astonishingly” well given tough market conditions.

The co-operative bank sold the Eu500m no-grow fundierte Bankschuldverschreibung at 55bp over mid-swaps, the tight end of guidance of the 56bp over area. This followed initial price thoughts of the high 50s.

Crédit Agricole, DZ Bank, Landesbank Baden-Württemberg and UniCredit lead managed the transaction.

Stefan Dahm

Stefan Dahm, head of capital markets at Raiffeisen-Landesbank Steiermark, told The Covered Bond Report that after several weeks when markets were shut, the issuer yesterday felt that there was a possibility the market would absorb a deal. Positive feedback from the syndicate and potential key investors encouraged the issuer to execute the deal, he said.

“The market environment was friendlier, with investors showing a bit more optimism, in addition to a bit of a back-up in yields,” said Dahm, “and who knows how long a window will last?”

Syndicate bankers said that sentiment is still fragile, however, with some investors maintaining a cautious approach. This was something that the issuer and the leads discussed before going ahead with the deal, said Dahm, but which did not manifest itself during bookbuilding for this particular issue.

“It went astonishingly well given this market,” he said. “It was oversubscribed and priced at the tight end. It was well received, showing that, with proper preparation, a solid cover pool and a good story it is still possible to successfully launch a deal even in difficult markets.”

The new issue was one of four new sub-Eu1bn deals this week. Dahm had previously told The Covered Bond Report that the issuer was aiming for a Eu500m deal.

“It would have been possible to do more,” he said yesterday, “but that would have exceeded our funding needs. Of course, a Eu750m or Eu1bn issuance size would have attracted additional investors. The investors we reached with our transaction are obviously happy with the Eu500m size as well.”

Coming up with a level for the transaction was not straightforward, said Dahm, given the lack of an extensive benchmark curve in Austria – although he noted that pricing in such market conditions is a difficult task anyway.

The re-offer level included a “significant” new issue premium, he said.

“Spreads are wide, but they are where they are,” he added.

The re-offer spread is the same as that of a Eu750m seven year public sector backed deal for fellow Austrian issuer Erste Group Bank at the end of August. This was the most recent Austrian benchmark before Raiffeisen-Landesbank Steiermark accessed the market.

The issuer had aimed for a decent take-up of the bonds by foreign investors and also targeted real money accounts, said Dahm.

“We are very satisfied with the quality and distribution of the participating investors,” he said.

German accounts took 54% of the paper, Austria 35%, Denmark 6%, France 4%, and other Europe 1%. Banks were allocated 65%, central banks and agencies 11%, funds 10%, pension funds 10%, insurance companies 2%, and others 2%.