A KHFC seven year benchmark suffered disappointment today (Wednesday), with investors apparently resisting further supply from Korea at tight levels, leaving the issuer with €550m at initial guidance, but a twice oversubscribed SG SFH €750m eight year was able to achieve ambitious pricing.

After a mandate announcement on Friday and following investor calls this week, Korea Housing Finance Corporation (KHFC) leads BNP Paribas, HSBC, ING, Societe Generale and Standard Chartered opened books this morning with initial guidance of the mid-swaps plus 19bp area for the October 2028 social covered bond, expected rating triple-A. After about two hours and 45 minutes, they reported books above €500m, and after three hours and 45 minutes, they set the spread at plus 19bp with the book volume remaining the same. The deal was ultimately sized at €550m (KRW755m) on the back of demand above €630m, including €75m in joint lead manager interest.

Bankers away from the leads said the guidance could have contributed to the lack of momentum behind the trade.

“It didn’t seem particularly off,” said one. “Maybe a bit on the aggressive side, but I’m a bit surprised with the pushback they had.

“They have been quite active the past few years,” he added, “and maybe you reach a moment where investors don’t necessarily have line availability.”

KHFC last tapped the market four months ago, with a successful €1bn five year, after raising €1.5bn in two euro benchmarks in 2020. Compatriot Kookmin, meanwhile, sold a €500m five year debut green covered bond last Wednesday (13 October) at 14bp over mid-swaps.

Syndicate bankers at the leads acknowledged that the pricing approach and line availability, also in relation to South Korea in general, likely contributed to the outcome.

“The fact that they are the last one in the queue after Kookmin and Kexim is probably a factor,” said one.

Agency Kexim sold a €850m three year debut green bond, rated Aa2/AA/AA-, at 15bp on Monday of last week (11 October).

“We’re also starting to see investors saying this is too tight, or that you wanted to go too tight with that IPT,” added the lead banker, “and with recent transactions moving 5bp, maybe people interpreted that they want to move that far, which probably didn’t help the momentum either.

“We were a bit disappointed.”

Another lead banker echoed this.

“Spreads have come a heck of a long way in euros for these newer regions,” he said. “Their existing five year was at 15bp, mid, so investors felt starting 4bp back of that was a little bit tight. The thinking had been that they didn’t want to start wider and then get held there.

“But they took €550m out of the market after €1bn earlier this year, and extended by two years paying only 1bp more,” he added, “so in terms of overall funding they’re taking out of the market, it’s very good – albeit it was a bit clunky getting stuck at initial guidance.”

The issuer opted for €550m rather than the standard €500m to benefit from the funding level to a greater extent, said the lead banker, while the quality and size of the book supported it, with accounts keen to be allocated.

Societe Generale SFH hit the market this morning, with leads BayernLB, Commerzbank, DZ, IMI-Intesa Sanpaolo, RBI, Societe Generale and UniCredit going out with initial guidance of the mid-swaps plus 4bp area for the €750m no-grow October 2029 issue, expected rating triple-A. After an hour and five minutes, they reported books above €1.25bn, excluding joint lead manager interest. After two hours and 30 minutes, they revised guidance to mid-swaps flat plus or minus 1bp, will price in range, on the back of books over €2.25bn, excluding JLM interest. The spread was ultimately fixed at minus 1bp, with books above €1.8bn good at revised guidance, excluding JLM interest. Final books at re-offer were above €1.4bn, including €60m in JLM interest.

A syndicate banker away from the leads called the deal an “absolute blinder”, although another suggested a tighter starting point could have been taken, such as 3bp over.

“But at the end of the day, it’s the same result,” he said, “and probably looks a bit nicer with a bigger order book.”

The pricing was seen roughly flat to fair value. According to pre-announcement comparables circulated by the leads, SG SFH January 2028s were at minus 1.5bp, mid, July 2029s at minus 1bp, and February 2030s at minus 0.5bp.

“It was apparent from the updates that there was some sensitivity involved,” said a syndicate banker at one of the leads. “But if you’re almost two times done on a super-aggressive level then you can’t have done a lot wrong.”

The deal is SG SFH’s second euro benchmark this year, after a €750m 10 year in January, and it only issued once in 2020, also in January, noted the lead banker.

“SG has become a pretty scarce issuer in this business,” he said, “which of course gives them some leverage when it comes to pursuing ambitious pricing targets, and today’s was definitely ambitiously priced.”

Banca Carige could hit the market tomorrow (Thursday), having already mandated banks for its first benchmark OBG in six years. Despite the Italian lender being at the riskier end of the market, with triple-B covered bond ratings, a syndicate banker away from the mandate said he expected SG’s outcome rather than KHFC’s to provide a better guide to its likely fate.

“It feels like the ECB-eligible part of the market is kind of really in a sweet-spot,” he said, “because you’ve got rates coming up, which is bringing in a few more of the total return buyers who were locked out by negative yields before. And at the same time, you’ve still got that support of the central bank behind you, which gives you a lot of power in execution and will support the Italian trade.

“And Italian covereds have been super-quiet for the last couple of years, so I think structurally there’s still a lot of money to go in there.”

Bausparkasse Schwäbisch Hall is also due, with a €500m no-grow 10 year mortgage Pfandbrief via Barclays, DZ, Helaba, Natixis and RBI, following a mandate announcement today. According to pre-announcement comparables circulated by the leads, its October 2030s were at minus 2.5bp, mid, and its April 2033s at minus 2bp.