A Eu500m short seven year covered bond for PKO Bank Hipoteczny today (Wednesday) attracted new investors to the issuer, with the book closing at over Eu1.35bn, the deal benefitting from a relatively higher spread compared with other non-Eurozone issuers as well as PKO’s increasing familiarity.

The new issue is PKO’s third benchmark covered bond, following two Eu500m short six year deals, the first in October 2016 and the second this March. No other Polish issuer has launched a euro benchmark covered bond to date.

After completing a European roadshow on Monday, PKO Bank Hipoteczny announced a mandate for an August 2024 euro benchmark covered bond yesterday (Tuesday) morning.

Leads HSBC, PKO Bank Polski, LBBW and UBS launched a Eu500m (PLN2.14bn) no-grow deal today with guidance of the 35bp over mid-swaps area. They announced after around one hour and 20 minutes that the book had exceeded Eu800m.

Guidance was subsequently revised to the 30bp area, plus or minus 2bp will price within range, on the back of over Eu1.2bn of orders, excluding joint lead manager interest. The spread was then fixed at 28bp with books above Eu1.35bn.

“It went amazingly well,” said a syndicate banker at one of the leads. “The market is clearly really strong, you just have to look at the performance in the deals priced earlier this week, which were already tight.

“To come into this scenario with a new covered bond from a strong issuer like PKO, which has a relatively higher covered bond spread compared to its natural peers in terms of quality, it is natural that it worked so well.”

The lead syndicate banker added that investors that had not previously bought PKO paper had participated in the new issue.

“They further expanded their investor base, by quite a bit,” he said. “They have ticked all the boxes, and they have taken a good approach to establishing themselves in the market.

“They have been a frequent issuer, true to their word, and they now have a good curve with a number of separate points to buy.”

Bankers away from the leads agreed.

“PKO is establishing itself as a regular name in the covered bond market and it shows with this result today, in particular by the pricing so close to fair value,” said one.

Bankers said the deal offered a new issue premium of around 1bp, seeing PKO Bank Hipoteczny June 2022s at 21bp, mid, and January 2023s at 23bp, and based on the steepness of covered bond curves of other non-Eurozone issuers.

The deal was deemed to have offered a pick-up of around 10bp versus the Polish sovereign, with the government’s August 2024s seen at around 18bp, bid, pre-announcement. Bankers noted the relative value of Polish covered bonds versus the sovereign had improved after recent tightening in government bonds.

“The investors that were looking for some pick-up over the sovereign will have liked this deal a lot,” said a syndicate banker away from the leads. “Thanks to the moves in the sovereign, the pick up is quite attractive, especially for a high quality product like this.”

However, a syndicate banker at one of the leads said they had received few questions from investors on the roadshow regarding the pick-up versus govvies.

“The performance in the sovereign has helped,” he said. “But this is not totally a RV trade, you now have an issuer that is pricing and trading off its own curve.”