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VÚB gets ‘outstanding’ result for first Slovak benchmark

Všeobecná úverová banka (VÚB) launched the first benchmark covered bond from the Slovak Republic today (Tuesday), a EUR500m no-grow five year issue that attracted some EUR2.4bn of demand from 160 investors, allowing pricing to be tightened 12bp from IPTs.

VUB Banka imageThe inaugural Slovak benchmark comes after a new covered bond law came into effect at the beginning of 2018, which has been seen as superior to the preceding framework and aligned with European best practices set out by the European Banking Authority (EBA).

VÚB, which is majority-owned by Italy’s Intesa Sanpaolo, concluded the roadshow for its benchmark debut yesterday (Monday) and firmed up its previously announced plans to issue a EUR500m no-grow five year.

Leads Banca IMI, Commerzbank, Deutsche, Erste and LBBW this morning went out with initial price thoughts of the mid-swaps plus 40bp area for the new issue, which has an expected rating of Aa2. After a little over an hour books were reported as being above EUR1bn, excluding joint lead manager interest, and guidance was set at the mid-swaps plus 35bp area after an hour and a half, with books above EUR1.5bn.

Guidance was revised to 30bp+/-2bp after two and a quarter hours on the back of books above EUR2.25bn and with more than 130 accounts involved. The pricing was fixed at 28bp over mid-swaps on the back of EUR2.5bn of orders and over 160 accounts participating, and EUR2.4bn of demand was good at re-offer.

A syndicate banker at one of the leads said the outcome was outstanding.

“It exceeded our expectations in terms of the number of accounts and size of the book,” she said. “You obviously don’t always expect everyone to be ready to participate in an inaugural trade, so 160 accounts and a EUR2.4bn order book, we couldn’t have sought a better outcome.”

The lead banker said the large, 12bp move from IPTs to re-offer was partly a reflection of the inaugural nature of the trade, and that the number of investors who ultimately dropped out was “very marginal”. And with VÚB’s issue being the first benchmark from a new jurisdiction, investor feedback ahead of launch regarding pricing took in a wide range of views and references, including the Slovak sovereign, similarly rated covered bonds, and other CEE issuance.

Polish covered bonds issued by PKO Bank Hipoteczny emerged as a key comparable, according to the lead banker, and VÚB’s final pricing of 28bp over compared with PKO January 2024s at 37bp over.

“PKO has a Aa3 rating and doesn’t benefit from the Eurozone status,” she noted, “whereas VÚB has Aa2 and meets CBPP3 eligibility as well.”

The covered bonds offered a pick-up of around 32bp over the sovereign, with Slovak government bonds seen at 4bp through mid-swaps on an interpolated basis. VÚB’s pricing was roughly flat to where a recent EUR1bn March 2024 OBG issue, rated Aa3, from parent Intesa Sanpaolo was quoted yesterday.

The European Bank for Reconstruction & Development (EBRD), which assisted with the creation of the country’s new legislation, has launched a EUR385m framework for investing in Slovak covered bonds, it announced on Friday. Under a previous, EUR200m programme launched in 2017, the development bank invested in five Slovak issuances, and the EBRD said the new framework has been spurred by the strong market demand and significant impact of the first.

“This is a large framework and it represents a big step in the development of the Slovak capital market,” said Lucyna Stańczak-Wuczyńska, EBRD director for EU banks in the financial institutions group. “It demonstrates what the EBRD can offer as a partner as investor as well as in policy engagement.”