A Eu500m short seven year issue for PKO attracted a record number of investors for the issuer on Wednesday, benefitting from an elevated pick-up over govvies. The deal confirmed PKO as a regular issuer, said CEO Rafał Kozłowski, who hopes other Polish issuers will soon join the market – after Santander’s Bank Zachodni WBK stated covered bond intentions.

Following the conclusion of a European roadshow on Monday, leads HSBC, PKO Bank Polski, LBBW and UBS, with co-managers Erste Group and DekaBank, launched the Eu500m (PLN2.14bn) no-grow August 2024 deal on Wednesday morning with guidance of the 35bp over mid-swaps area.

Guidance was 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, before the spread was fixed at 28bp with books above Eu1.35bn. The final book stood at almost Eu1.5bn, with more than 100 accounts – the most to have participated in any of PKO Bank Hipoteczny’s deals to date.

“We are satisfied with this number of investors,” Rafał Kozłowski, CEO of PKO Bank Hipoteczny, told The CBR. “The deal went according to our expectations.

“Moreover, the target for us was to confirm that we are a regular issuer. The most important thing here is that this deal did indeed confirm our strategic position of being a regular issuer.”

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.

“Being the third deal, we had to consider firstly the maturity profile of the bonds issued so far, and secondly the market conditions, as well as our willingness for a further extension of the investor base, including bank treasuries,” said Kozłowski. “The challenge was to extend the curve, because we are loaded in 2022 and 2023, and there were discussions on whether to go shorter or longer, to the 2024 area, or potentially even longer than that.

“In the end, we decided that the most attractive spot we could offer to investors would be in the 2024-2025 area, because Polish govvies had tightened very much in this area. This worked, because it made a lot of sense for those investors that believe the relative value over Polish govvies is the main driver of the transaction. They were definitely happy with our offer this time.”

Polish sovereign bonds had rallied after the government announced that it was not going to issue new debt in the near term, with yields tightening 10bp-20bp across the curve since PKO’s last euro benchmark issue in March. Whereas seven year Polish government bonds traded in the region of 34bp-48bp in March, they have traded between 16bp and 20bp this week. This meant that while PKO’s two previous euro benchmarks offered a pick-up of around 3bp versus the sovereign, the new issue offered a pick-up of 8bp-12bp.

Kozłowski noted that the new issue was trading at 2bp inside re-offer today.

“This time, the market conditions enabled us to be a little bit more generous to our investors,” he said. “We took their voice into account, and this was one of the good features of Wednesday’s transaction.

“Moreover, the share of bank accounts in the deal increased from 34% in March to 54%.”

Accounts in Germany and Austria were allocated 55% of the deal, France and the Benelux 14%, the Nordics 13%, the UK 5%, Italy 5%, and others 8%.

Kozłowski said Bank Hipoteczny will issue its next euro benchmark covered bond in 2018.

“PKO Bank is making a lot of footprints in the covered bond world,” he said, “and we hope we will be followed soon by our colleagues from two other mortgage banks in Poland, and also other new mortgage banks that are being set up at the moment.”

As previously reported, ING Bank Śląski, a subsidiary of the Dutch ING Bank, announced plans in April to set up a new mortgage bank through which it will issue covered bonds.

Bank Zachodni WBK, a member of the Santander Group, also plans to establish a specialist mortgage subsidiary. In June, Michał Gajewski, president of Bank Zachodni WBK, said the bank intended to submit a proposal to the Polish FSA at around the turn of the third and fourth quarters of this year.

He said a mortgage subsidiary would allow the bank to obtaining stable financing on attractive terms through the issuance of covered bonds.