PKO Bank Hipoteczny today (Thursday) scored a “solid” result with its second euro benchmark covered bond, gradually building a book of over Eu800m for a Eu500m short six year issue that bankers said was a good result given the unfamiliarity of the Polish market, with some deeming the premium impressively slim.

After holding a roadshow last week and following a mandate announcement yesterday (Wednesday), PKO Bank Hipoteczny leads LBBW, PKO Bank Polski, Santander, SG and UniCredit launched the Eu500m (PLN2.14bn) no-grow January 2023 issue with guidance of the 30bp over mid-swaps area at 9:25 CET this morning.

At 11:50, the leads announced that orders had exceeded Eu700m, excluding joint lead manager interest. Guidance was then revised to the 28bp area plus or minus 1bp on the back of over Eu800m of orders, including Eu75m of lead interest, at 13:00. The book closed 15 minutes later, before the spread was ultimately set at 27bp.

“It’s a solid second trade,” said a syndicate banker at one of the leads.

PKO Bank Hipoteczny, the specialist mortgage bank subsidiary of PKO Bank Polski, sold the first and to date only other euro benchmark covered bond from Poland last October, another Eu500m short six year issue.

Bankers noted that the execution process developed relatively slowly, but said it was not surprising that demand was slow to build relative to recent deals given that Poland is still an unfamiliar jurisdiction to many covered bond investors.

“They’re still a newcomer, they’re not CBPP3-eligible, and some accounts will still have questions about the jurisdiction,” said a banker away from the deal. “Taking that into account, books over Eu800m aren’t bad at all.”

Some bankers, including those at PKO’s leads, said the deal offered a new issue premium of around 3bp, seeing PKO June 2022s at around 22bp, mid, pre-announcement.

“For only their second entry into the market, that is a very good price and a very small concession,” said a syndicate banker at one of the leads.

However, some bankers said the new issue had arguably been priced through its shorter dated comparable, seeing the June 2022s quoted at around 30bp, bid, this morning. They said, however, that the bond remains relatively illiquid, and therefore is not particularly useful for deriving fair value of the new issue.

The deal was priced with a slight pick-up to the interpolated sovereign curve, according to some bankers, who saw Poland October 2021s at 5bp and September 2025s at 36bp.

PKO’s covered bonds are rated Aa3 by Moody’s, which is two notches above the sovereign, and are capped at the country ceiling level. The Polish issuer’s debut was deemed to have been priced with a 3bp pick-up versus the sovereign.

Some bankers noted that Polish government bonds have tightened in recent weeks, while PKO’s June 2022s have not yet matched this performance, also lagging tightening in the covered bond spreads of other jurisdictions. They said this suggests there is potential for strong performance in PKO Bank Hipoteczny’s issuance.