Intesa Sanpaolo said that the reception to a Eu1.25bn 10 year covered bond launched yesterday (Thursday) – the longest and largest Italian benchmark in over a year – confirmed its strong funding capability. Meanwhile, attention is turning to a likely KBC debut next week.

Intesa Sanpaolo, Piazza San Carlo, Turin

The Italian bank’s obbligazioni bancarie garantite was the longest dated Italian benchmark covered bond – and benchmark covered bond from a peripheral jurisdiction – since UniCredit sold a Eu1bn 10 year OBG in August 2011, and the largest since Banca MPS issued a Eu1.25bn five year in March 2011.

Leads Banca IMI, Barclays, Deutsche and Société Générale priced the transaction at 200bp over mid-swaps yesterday after having gone out with initial price thoughts of the 220bp area and guidance of 210bp. According to the issuer, orders exceeded Eu5bn and some 83% of demand was from international institutional investors.

“This issue confirms the group’s strong funding capability,” said Intesa Sanpaolo. “In the first 10 months of the year, five senior Eurobond issues totalling Eu6bn and one OBG issue for Eu1bn had already been placed on international markets with a total demand – 75% from foreign investors – exceeding the issuance target by 180%.

“Prior to this issue, medium-long term funding had already exceeded total 2012 maturities, with approximately Eu23bn placed, of which approximately Eu14bn were retail placement.”

According to one of the leads, Eu1bn of orders were placed within 15 minutes on the back of the 220bp over IPTs, and Eu2.85bn in the first 35 minutes, after which the guidance was tightened to 210bp area plus or minus 10bp. The books were closed after a total of just over 50 minutes with orders totalling more than Eu5bn, comprising 215 accounts.

Germany and Austria were allocated 38.4%, Italy 26%, France 19.3%, the UK 5.2%, Iberia 3.8%, the Benelux 2.8% and Nordics 2.5%. Fund managers took 54.4%, insurance companies 31.5%, and banks 13.3%.

The issuer put the spread through the Italian sovereign at 106bp. Several syndicate officials away from the leads yesterday said that the IPTs had been unnecessarily wide, but today (Friday) one defended the 220bp starting point.

“If you look at the deal, it did come at some 100bp through the sovereign,” he said, “and that has to be taken into consideration. In my opinion it was the right strategy and it priced well and has traded nicely.”

Intesa Sanpaolo’s mortgage covered bonds are rated A2 by Moody’s.

The Italian bank’s benchmark was the third this week, coming after a Eu1bn seven year BPCE SFH deal on Wednesday and a Eu1.25bn five year issue for Belfius Bank on Monday, which was the first deal issued under Belgium’s new covered bond framework.

Fellow Belgian KBC Bank is in the middle of a roadshow ahead of its first deal, with Deutsche Bank, DZ Bank, Goldman Sachs, KBC and Natixis as leads. The deal is seen as the most concrete prospect for new benchmark covered bond supply in euros next week.

A syndicate official away from the leads suggested that a level of the 35bp area would be appropriate for a KBC five year. Belfius’s inaugural issue was priced at 45bp over mid-swaps and tightened after launch.

“Belfius has traded very nicely,” said the syndicate official, “and is now 36bp bid. KBC is arguably a better name, although on the covered bond side they are both triple-A rated, albeit with KBC having stable triple-A ratings and one of Belfius’s being on negative outlook.

“KBC should trade around 5bp-10bp through, but the new issue premium should take the level to around 35bp over.”

KBC’s roadshow is scheduled to finish on Tuesday.