KBC launched an inaugural, Eu1.25bn five year covered bond yesterday (Monday), which the issuer said was “extremely well received” and came after extensive investor work, while a lead syndicate banker defended the pricing approach after some said IPTs were unnecessarily wide.

The Belgian bank’s benchmark was the second five year debut transaction under recently introduced Belgian legislation after a Eu1.25bn issue for Belfius Bank two weeks ago.

KBC leads Deutsche Bank, DZ Bank, Goldman Sachs, KBC and Natixis went out with initial price thoughts of the high 30s over mid-swaps, but set guidance tighter, at the low 30s given “the magnitude of the market response”, according to one of the leads.

Around Eu3bn of indications of interest were collected in 30 minutes on the basis of the high 30s, with the final pricing set at 30bp over after the leads built an order book, post-reconciliation, of around Eu5.4bn.

Nicole Zorn, head of FIG debt syndicate at DZ Bank, said that the deal size was initially set at Eu1bn, but that it was subsequently increased to Eu1.25bn following the rapid growth of the order book.

She said that a good investor response was expected after the positive outcome of the Belfius trade and decent feedback received during roadshows, as well as because of a general lack of supply in the market.

Some market participants had suggested the initial price thoughts were unnecessarily wide, but Zorn strongly disagreed with this, saying that the starting level was a technical choice suitable for an inaugural transaction, as was the case with Belfius’s transaction.

“This is what you do with a debut transaction to make sure to get all the investors in,” she said. “It was not because we did not feel confident; it was because we wanted to be more generous and to squeeze it in step by step.”

She added that IPTs were set in the high 30s to give investors and the issuer more flexibility on the pricing.

“When you do an inaugural transaction you don’t want to discuss about one or two basis points,” she said.

Zorn noted that KBC’s issue is trading well, as expected, at 25bp over mid-swaps.

Several bankers away from the leads said that the starting spread had been too wide but that the right spread had been reached in the end, with one attributing the choice of IPTs to a mixture of being “naturally conservative” and some “irrationality” in light of where Belfius’s issue, a good, recent comparable, was trading.

“It sums up the whole year,” he said. “It’s all about the technicals.”

He said that this also helped explain why KBC’s deal had come through some French covered bonds, which in his view does not make sense given that Belgian government bonds trade wider, by around 12bp-15bp, than French government bonds.

The issuer said that the deal came after an extensive communication process and a pan-European roadshow from 22-28 November.

The issue was “extremely well received”, it said, as it offers geographical diversification to covered bond investors, particularly with Belgium being the latest European country to adopt covered bond legislation.

“The covered bond benchmark issue will further strengthen KBC’s name and credit story in the bond markets as a leading issuer in the Belgian market,” added the issuer in a statement. “It gives the issuer the opportunity to further diversify its investor base and long term funding mix and resources through covered bonds.”

A lead syndicate banker noted that the issue was also attractive because it offered a pick-up over German Pfandbriefe and the Belgian sovereign curve, coming at 23bp over OLOs.

Two hundred accounts were represented in the order book, with banks taking 49% of allocations, asset managers 35%, pension funds 4%, insurance companies 3%, central banks 3%, and others 6%.

Germany and Austria were allocated 43%, the Benelux 20%, the Nordics 12%, France 11%, UK 8%, Switzerland 3%, southern Europe 1%, and others 2%.