PKO Bank Hipoteczny sold the first euro benchmark covered bond from Poland today (Monday), pricing a Eu500m short six year issue with only a slim pick-up versus the sovereign, and bankers said the deal’s thrice-subscribed book was a testament to the strength of the issuer and the Polish product.

PKO Bank Hipoteczny – the mortgage bank of PKO Bank Polski – had been expected to inaugurate the euro-denominated Polish covered bond market following a European roadshow that concluded on Wednesday of last week.

“On a day of interesting deals, PKO’s debut is for the wider market probably the most interesting deal out there,” said a banker. “It’s the first euro benchmark out of Poland, and it looks like a good start.”

After announcing a mandate for a euro benchmark June 2022 issue on Friday, PKO Bank Hipoteczny leads Deutsche, JP Morgan, LBBW, PKO Bank Polski and Société Générale launched a Eu500m (PLN2.15bn) no-grow deal with initial price thoughts of the 25bp-28bp over mid-swaps area this morning.

Guidance was then set at the 20bp-25bp area on the back of books over Eu1.4bn, before the leads revised guidance to the 18bp-20bp area, will price within range, with books around Eu1.5bn. The deal was then re-offered at 18bp.

“It’s a great debut, and a testament to the great work done by the issuer on the road, to the very strong credit, and to the quality of the new Polish product,” said a syndicate banker at one of the leads. “We chose the right path in getting a decent pick-up over Poland to start with, gathering a decent book and then step by step tightening it.

“It’s a decent oversubscription that just shows that investors really wanted these bonds. Not all investors stayed through the tightening, but for every account that dropped out, another stepped in.”

Citing Poland October 2021s and January 2022s at 15bp, mid, syndicate officials at the leads said the new issue offered a pick-up of around 3bp over the sovereign.

As PKO’s covered bonds are expected to be rated Aa3 by Moody’s, the leads also cited as comparables AA rated covered bonds from a range of peripheral jurisdictions. They suggested that Bank of Ireland’s outstandings were the most appropriate comparables, seeing its Aa1 rated February 2021s and May 2022s at 5bp and 6bp, mid, respectively.

Polish covered bonds feature conditional pass-through structures, following an update to the country’s covered bond law in January. PKO Bank Hipoteczny sold a zloty-denominated debut in April, a PLN500m (Eu116m) five year issue, which was the first benchmark Polish covered bond since the update to the covered bond law. The issuer sold a second zloty benchmark in June.