SG takes EU750m, weak mart constrains HSBC Canada
SG SFH followed compatriot BPCE SFH into the covered bond market today (Tuesday), successfully pricing a EUR750m long six year deal before an already soft market weakened further, although an HSBC Canada $750m three year debut was constrained by the deterioration in conditions.
BPCE sold a EUR1bn eight year issue yesterday (Monday) that attracted some EUR1.2bn of demand, with pricing of 9bp over – following initial guidance of the 11bp area – implying a new issue premium of 4bp-5bp.
Leads BayernLB, BBVA, Crédit Agricole, ING, SG and UniCredit opened books for Société Générale SFH’s January 2025 benchmark this morning with guidance of the mid-swaps plus 7bp area.
Syndicate bankers at the leads said that although they had to take into account a weaker open, on the back of overnight falls in the US and Asia, they were confident proceeding with the French covered bond issue.
“Usually in rough times the covered bond product shows its best face,” said one.
He noted that the issuer also had the fall-back option of limiting the issue to EUR500m, while another lead syndicate banker said the starting guidance of the 7bp area implied a new issue premium of some 8bp.
“That was more than fair,” he said, “as you have to pay up in today’s market, especially as we head towards year-end.”
After around an hour the leads had taken some EUR1bn of orders, and then discussed whether to move straight to 5bp, or move to 5bp plus or minus 1bp, ultimately opting for the latter, with some further large orders coming in, according to the lead banker, and very few accounts dropping when they then went to the 4bp level, with the book for a EUR750m deal ending above EUR1bn.
The lead bankers put the final new issue premium at around 5bp, noting that SG SFH typically trades a few basis points inside BPCE.
The other lead banker said that a deal of EUR1bn would have been possible at 6bp and perhaps even at 5bp.
“Still having the chance to decide whether you prefer price or size at the end of the year is a comfortable situation,” he added, although noting that it was good to have gotten the deal wrapped up before conditions deteriorated further during the day.
One banker said he was surprised at the current level of issuance, with most banks done for the year, noting that both BPCE’s and SG’s deals constituted pre-funding.
“As the year-end is nearing, liquidity is slowing down and the first assets managers are starting to shut down their portfolios, I thought we’d see less,” he said, “but some other names are also eyeing the market – although maybe not this week, because things are a bit shaky or are maybe planning something similar tenor-wise to what we have just seen.”
HSBC Bank Canada priced its inaugural covered bond in the middle of guidance, the $750m (C$988m, EUR656m) three year 144A/Reg S trade coming at 33bp over mid-swaps.
The guidance of the mid-swaps plus 33bp area was the same as that for a three year DBS covered bond yesterday, but the Singaporean was able to tighten to 31bp over and size its benchmark at $1.25bn on the back of some $1.65bn of orders.
A syndicate banker on HSBC Canada’s deal said the new issue was “pretty decently oversubscribed” and noted that its $750m size of was commensurate with the relatively modest scale of the C$3.5bn ($2.66bn) programme. However, he said that market conditions contributed to the pricing outcome.
“It was a tricky day in terms of market sentiment, with fixed income and other asset class conditions deteriorating a fair bit over the course of the day,” he said. “They didn’t get quite the leverage they might have hoped for on the pricing, but nevertheless successfully executed their debut.”
The lead banker said Canadian issuers RBC, TD and Scotiabank trade from 26bp to 28bp over, respectively, in the three year part of the curve, with smaller issuers around the wider end, implying HSBC paid around 5bp to enter the market.
He was nevertheless similarly encouraged as those involved in this week’s euro trades about the dealflow.
“It’s good to see something getting done,” he said. “With the likes of SG and BPCE, and what was probably the pick of the week, DBS, all getting done, it demonstrates the utility of covered bonds as an asset class: that when things are challenging, they provide an avenue for market access.
“They are doing what they are supposed to.”
HSBC, CIBC, Commerzbank, Lloyds, Natixis, ING, RBC, Scotiabank and UniCredit were leads on HSBC Canada.