A legislative amendment is underway in the Czech Republic, The Covered Bond Report has learned, which could open the door to the first Czech issue in euros.

The legislation in question is not the country’s 1995 Covered Bond Act – which governs issuance of mortgage backed covered bonds (hypnotecní zástavní list) – but the general Czech Bond Act of 2004. This stipulates that bonds issued under the act be first registered to an investor securities account in the Czech Republic.

While this has not caused problems for senior unsecured issuance from Czech banks, according to a market participant, it has been a barrier to covered bond issuance.

The amendment proposes scrapping this geographical requirement, which the market participant described as “a major breakthrough for covered bonds”.

The Czech government passed the proposed amendment on 25 October, according to Eva Svobodová, partner at White & Case in Prague, although it still needs to pass through several steps in parliament before being presented to the President to be signed into law. If the law is passed by year-end, then a first Czech euro issue could hit the market as early as March 2012.