Banco Santander Chile is targeting Thursday for the sale of a $100m equivalent 15 year covered bond, the first under a new regulatory framework in Chile, after uncovering good demand from a range of investors during a roadshow last week, an official at the issuer told The CBR.

The price of the bond will be determined by a Dutch auction, according to Emiliano Muratore, manager, financial management department at Banco Santander Chile, with the bank having decided that the starting offer will be 10bp inside the spread over the central bank rate on the issuer’s senior unsecured debt. This was trading at around 120bp over on Friday, he said.

“That is the smallest premium we found reasonable,” he said. “All of the accounts expected it to be tighter but we want to create traction, and ultimately the price will be determined by a competitive process.”

Santander Chile has filed a shelf programme with the financial supervisory authority, Superintendencia de Bancos e Instituciones Financieras (SBIF), which allows the bank to issue up to $1bn equivalent (UF20m) in maturities up to 30 years.

The issuer obtained regulatory approval of its programme earlier this month, and last week went on a roadshow, holding 18 one-on-one meetings and a group meeting with 25 accounts.

The roadshow revealed that the planned debt issue should appeal to several types of accounts, according to Muratore.

“The feedback was very positive, especially from banks,” he said. “The bonds will be eligible for the central bank facility, so it is a good instrument for bank balance sheets.”

The low risk characteristics of the debt appeals to pension funds, added Muratore, while some asset managers will be forced to invest because of requirements that date back to a time when letras hipotecarias, a predecessor type of covered bond in Chile, were issued.

These bonds were popular in the 1970s, but supply dwindled thereafter, and in 2012 a new regulatory framework for bonos hipotecarios, the debt that Santander Chile will be issuing, was introduced. A notable feature of bonos hipotecarios is that the mortgages that the bonds finances are only originated after an issue has been launched, within a maximum of 18 months.

This aspect of the framework is behind the issuer’s decision to offer bonds of around $100m equivalent (UF2m) despite having filed a tranche of $150m with SBIF.

“It is not a reflection of the level of demand, but because we want to be prudent,” said Muratore. “We prefer to be slow and sure than to risk not being able to originate the mortgages in 18 months.”

Santander Chile’s planned transaction will be the first under the country’s new framework, but Muratore believes that other issuers will turn to bonos hipotecarios, too.

“All the medium to large banks are interested in seeing how we do in terms of size and pricing, and I am relatively optimistic that we will see more banks coming on board.”

Santander Global Banking & Markets will lead manage the transaction.