DZ Hyp sealed its status as Germany’s biggest Pfandbrief issuer with a successful post-merger EUR1bn deal on Tuesday, and Patrick Ernst, head of treasury at DZ Hyp, spoke to The CBR about its approach to the market in its new guise and revealed plans to work on green covered bonds.

After the merger, effective 27 July, you held a roadshow in September and October – what were the key messages you were telling investors about DZ Hyp?

Patrick Ernst, DZ Hyp (pictured): This roadshow was not only the starting point for DZ Hyp‘s funding activities in benchmark format, but it was also a question of responsibility to our established investor base to provide them broad transparency after the merger. So the first key message was the merger itself. We are delighted that we successfully concluded this merger, which was the logical consequence of the merger between both parent companies DZ Bank and WGZ Bank in 2016 and continues the efficient positioning of the cooperative financial network. With this merger we formed a leading provider in the real estate business in Germany, with a balance sheet of around EUR75bn, and an important Pfandbrief issuer, with an outstanding volume of EUR45bn.

Secondly, we presented the results of DZ Hyp during the first six months of 2018, as a first detailed impression of DZ Hyp´s solidity and strength. The last, but no less interesting key message has been to present DZ Hyp as a frequent issuer with an excellent rating basis and interesting covered bond issuance projects, with an annual volume between EUR4bn and EUR6bn.

Did the response to the deal on Tuesday give you confidence investors got your messages?

Ernst, DZ Hyp: Yes, absolutely. During the roadshow activities we got so much positive feedback on DZ Hyp as an issuer. Nevertheless, it‘s always exciting to come to the market, especially in such a challenging market environment, with the ECB exiting, spreads widening, and a lot of volatility in the market. But in advance we monitored the market quite closely and decided that this week was a good issuance window for DZ Hyp´s first benchmark.

And the results of the transaction proved us right. If you analyse the order book, with allocatable orders of over EUR1.2bn, more than 80 individual investors and the strong momentum in the book, we are more than satisfied with our debut. It is a big success for us.

EUR1bn is more than DG Hyp and WL Bank typically issued. With the annual amounts you are talking about, of EUR4bn-EUR6bn a year in Pfandbrief overall, will you be stepping up the size you do on a regular basis?

Ernst, DZ Hyp: You´re right. In the past both banks – DG Hyp and WL Bank – usually issued in a size of EUR500m no-grow. And it fitted exactly to their needs. With the merger, DZ Hyp doubled not only the balance sheet, but also new business and corresponding to that the funding needs. So we adjusted our funding strategy for DZ Hyp and added some elements to our funding toolbox like bigger sizes. The advantage of bigger sizes is that you don´t have to enter the market too often. Besides, we got feedback from many investors that bigger sizes can be a trigger to take part in a transaction. To sum it up, investors can also expect issuances of EUR750m or even EUR1bn, as we’ve done this week.

You are now the biggest issuer of Pfandbriefe – that is quite a status to have. Does that make your role more important, or come with greater responsibility?

Ernst, DZ Hyp: In our perception it‘s more a question of responsibility than anything else. We´re one of the biggest Pfandbrief issuers and account for a big market share in Pfandbriefe outstanding. That makes us aware of our responsibility and we will take on this role in a sensible way because we can contribute to a strong covered bond market in the future.

DZ Bank issued its first green bond recently – might we see a green covered bond from DZ Hyp?

Ernst, DZ Hyp: Yes, definitely, and we look forward to this project. Sustainability itself is a big issue for DZ Hyp, so we release a yearly sustainability report and constantly try to improve our rating status. The next step is to create a DZ Hyp green bond framework to issue green bonds. As you can imagine, as a leading real estate bank in Germany we have a lot of energy efficient loans on our balance sheet and we will use them for issuance purposes. So we are about to set up a green bond project at the beginning of 2019.