KBC launched a four times oversubscribed debut covered bond today (Monday), a Eu1.25bn five year that comes two weeks after Belfius Bank inaugurated new Belgian legislation, with initial price thoughts again coming under scrutiny.

Leads Deutsche Bank, DZ Bank, Goldman Sachs, KBC and Natixis collected more than Eu5bn of orders for the deal, and tightened the spread from initial price thoughts of the high 30s over mid-swaps to 30bp over, via guidance of the low 30s over.

Syndicate bankers away from the leads said the deal was a success and signals that there is investor appetite for Belgian paper.

“The initial response must have been overwhelming, with order books reaching Eu2bn even before being open,” said one.

Some saw the initial price thoughts as defensive, but their views then diverged as to whether or not the appropriate spread had ultimately been arrived at. One said that this was the case after a “surprisingly defensive way of going about it”, with the high 30s looking almost like a “peculiar giveaway”.

Another said the final pricing was adequate and described the deal as a success, noting that it is often difficult to pinpoint the right spread to start at for an inaugural transaction.

“Of course it started with a higher number for the IPTs,” he said, “but with such a decent book it’s fine to price inside, also with such a step from the initial price thoughts.

“Some banks away from this deal will complain, but I won’t, because it’s a five billion book,” he added. “They started a little bit wider, but that’s not a problem.”

A lead syndicate banker said that the initial price thoughts took into account feedback from accounts, with many believing that the spread at the beginning at least should offer a pick-up to Belfius, and that the whisper was not actually defensive in that context.

Belfius Bank on 19 November sold the first benchmark covered bond backed by Belgian mortgages, a Eu1.25bn five year that was priced at 45bp over but has since tightened to the low 30s. Belfius’s benchmark was also re-offered considerably tighter than where it was first marketed, at the 55bp over area.

A syndicate banker away from the leads said that at the close on Friday Belfius’s issue was trading around 31bp/28bp over, and that KBC was coming roughly flat to the secondary level on Belfius’s deal, and probably 5bp-10bp through where a new Belfius five year would be priced.

Another syndicate banker away from the leads who also questioned the IPTs said that a tighter starting point would have led to the same final pricing outcome or even to cheaper deal for the Belgian issuer.

“I think the pricing in the 20 range would have definitely been possible,” he said.

This was in part because of the strong demand that has been expected for Belgian supply, he said, “especially after the spectacular performance of the Belfius trade” and with KBC having a higher senior unsecured rating than Belfius.

He also said that the Belgian government bond market was in better shape today than when Belfius launched its inaugural transaction, with OLOs having tightened to show that perceptions of Belgian risk have improved.

He added that KBC’s five year offers a good pick-up over the Belgian sovereign, but that he would have expected a smaller premium to government bonds.

“It’s the usual inaugural trade game of course, but they could have been more aggressive,” he said.

Another syndicate official said that KBC’s deal was coming at around 33bp over OLOs.