Raiffeisenbank a.s. is aiming to launch the first Czech euro benchmark covered bond next week, likely a Eu500m five year, and an official at the issuer said that both international and domestic dynamics – including an expected change to legislation – played into the timing of the debut.

The issuer, a subsidiary of the RZB Group, finished a roadshow ahead of the planned deal on Friday, having taken in Frankfurt, Düsseldorf, Munich, Vienna, Paris and London. Barclays, BNP Paribas and RBI International are lead managers.

Raiffeisenbank set up an international issuance programme in late 2012 after changes to the Czech Bond Act paved the way for accessing the international markets. In December 2012 it launched the first issue off the programme, a Eu500m December 2017 transaction.

According to Jan Pudil, executive director of treasury, investment banking and financial institutions at Raiffeisenbank a.s, this was a retained deal that has been used as collateral for a loan provided by the European Investment Bank to Raiffeisenbank as its Czech partner in an SME lending programme to central and eastern Europe.

“We did the retained issue just to test the programme and see if we would get ECB repo eligibility, which we did – it ticked all the boxes,” he said. “We now have it in Clearstream Triparty Repo.”

The issuer has just updated the programme and Pudil said that it will now be used to help the bank diversify its funding base.

“Czech banks have previously issued covered bonds domestically,” he said, “but that stopped in the past two and a half years because interest rates have been slashed to zero and it is impossible to compete with a retail situation where quite a few banks are still following the ING Direct model and paying over 1% on call money.

“Meanwhile, as we are one of the key network banks within RBI, our parent very much supports us being funding-independent. That is why they are quite keen on us using some good parts of our balance sheet as a funding vehicle.”

Pudil said he expects other Czech banks to use covered bonds similarly, particularly after an update to Czech covered bond legislation that is expected next summer. Several Czech banks teamed up under the Czech Banking Association and, together with Allen & Overy, prepared a draft of legislative changes, addressing issues that Moody’s currently considers as weak points in the Czech legislation – an inability to include derivative transactions as part of the cover pool, acceleration of all covered bonds upon an issuer’s insolvency, and an inability to have more than one cover pool.

He said that the prospect of the legislation being improved offers some upside to investors in the forthcoming transaction.

“We want to be first and give the western European investment community some guidance,” added Pudil, “and also to assure them that we will not be a one-off issuer, but will be coming to their market from time to time.”

The issuer met with 49 accounts on its roadshow and Pudil said that the feedback was positive. Although the roadshow took in predominantly real money accounts, the issuer also met bank treasuries and just before the roadshow the European Commission published final LCR rules clarifying that Raiffeisenbank’s covered bond will be Level 2A eligible, he said.

Pudil said that, given the issue’s A2 rating, investors were looking at it relative to similarly rated Italian covered bonds.

“It’s sort of unfortunate that they are comparing us to Italian banks because of the same rating,” he said. “When you look at NPLs in our country, they are half of that of Italy. So quality-wise, that’s something we feel is of a better quality.

“At the same time, we are realistic and given the fact that we are not in the Eurozone and therefore not part of the asset purchase programmes, we have to offer some kind of premium. But from the roadshow’s attendance we felt that it is certainly something they are looking for in terms of diversification and quality, and it’s going to be an interesting price discovery process as we go into the launch.”

Pudil said that some investors had been keen for the issuer to enter the market early this week, but that it is targeting launch next week in order to give investors visited later in the roadshow the time to finish their homework, particularly given that it is a new jurisdiction, with AQR results also due on Sunday.

A five year maturity is likely as this was the consensus among real money investors on the roadshow, he added, even if some insurance companies had been interested in a seven or even 10 year deal. He said that the potential pricing of shorter maturities was not considered sufficiently interesting.