Deutsche Hypothekenbank launched an inaugural sterling Pfandbrief benchmark yesterday (Thursday), a three year FRN sized at £325m versus initial expectations of £250m on the back of a book including investors new to the name, as “a starting point” for future sterling issuance.

Jürgen Klebe, senior director, funding and investor relations at Deutsche Hypothekenbank, told The CBR that the issuer entered the sterling market as it has a natural need for sterling funding, to finance assets originated in the UK.

“We have a well performing branch in London, lending to commercial real estate across the UK, and this bond is for refinancing the business our London colleagues do,” he said.

Deutsche Hypo had previously issued sterling-denominated private placements, but these have all matured.

In the run up to the deal, Deutsche Hypo met investors in the UK and Ireland, and on Wednesday afternoon announced a mandate for a three year FRN.

Leads Deutsche Bank, HSBC, JP Morgan and Toronto-Dominion launched the deal with guidance of the three month Libor plus 28bp area yesterday morning. It was priced at 27bp and the size set at £325m (EUR367m), with the final book at £330m.

“We feel this is a good success, because we first expected to print £250m, and the pricing tightened in 1bp as well,” said Klebe.

Klebe said the deal was distributed mostly to a mix of German, UK and Scandinavian accounts, including UK investors that had not invested in Deutsche Hypo before.

“The price was very much in line with expectations, because we as a German name trade roughly on the same level as major issuers from the UK in covered bonds, and the price was very comparable,” he added.

The last sterling benchmark covered bond from the UK was a £1.25bn three year FRN for Lloyds Bank that was priced at 16bp over three month Libor on 3 January. The last sterling benchmark overall was a £250m five year FRN for Singapore’s OCBC, priced at 27bp on 7 March.

Klebe said the new issue is “a starting point” for future sterling issuance.

“I am not sure if we will surface every year in sterling, but given the fact our London branch is still performing we will see more than this first deal,” he said.

Deutsche Hypo issued an inaugural green Pfandbrief in November, a EUR500m six year deal that was backed by commercial real estate loans. Klebe said the issuer would be “technically able” to issue a sterling-denominated green Pfandbrief.

“But having talked to UK investors about green bonds, the response was quite cautious compared to continental European investors,” he said. “Not too keen on green, if I may say.”