Rating: Aaa/AAA/-
Amount: $1bn
Maturity: October 22, 2019
Issue/reoffer price: 99.904
Coupon: 1.5%
Spread at reoffer: mid-swaps plus 5bp; 24.2bp over the 1.75% September 2019 US Treasury
Launch date: Wednesday October 15
Payment date: October 22
Joint books: Barclays, BNP Paribas, Citi, Mizuho
Bookrunners’ comment:
They have a much bigger programme than some of the other agencies. They look at a variety of instruments to meet those needs, whether it’s dollars or alternative currencies, plus they have a lot of access to Uridashi, but they are very short tenors. To balance the fact that they fund at very attractive levels elsewhere in the short end, they look for duration in dollars. In five years they have March 2019s, May 2019s and now October 2019s.
With so many market participants out last week it wasn’t too obvious to come, plus there was a lot of supply. So this felt like a much clearer week with not much data.
The book was slightly undersubscribed. But they weren’t looking for more than $1bn whereas in the past they’ve done $1.75bn. The existing 2019s were in and around 2bp mid, so maybe people were looking for a larger IPT. But a few trades have not been able to move from the IPT levels, so we felt that rather than game the market we’d go out more aggressively and if we ended up at that level then everyone would still be comfortable with the reoffer level of 5bp.
This year their March 2019s were issued at 28bp over, their May 2019s were issued at 12bp over and now they’ve issued at 5bp over. So there’s been huge spread performance. That’s true even on a coupon basis because rates are so much lower. From their standpoint this is fantastic funding.
I’d put the new issue premium in and around 2bp. The shorter dated 2019s were about 2bp and there’s probably 1bp extension from there.
We were trying to model up the bond and I had to keep restarting my screen because the coupon was completely off where the market was. I could hear that people were not making prices on the US Treasury market. It was definitely an interesting few moments.
But ironically, bookbuilding wasn’t that different. We had a few large accounts out of the Americas that came in right at the end. They’d looked at it the first day, then didn’t come back early the next day, but then came in. The book was very strong and firm and nothing really fell out.
The volatility was only particularly bad at the start of the bookbuilding. When Treasuries rallied, only $4m of orders dropped which is positive, as you could imagine some orders in the book would have been spooked. But clearly for investors that hadn’t placed their orders yet, the volatility coupled with the rally was not going to encourage them to come in.
We stuck to our normal timetable. The only thing that was a bit different was that we chose to set the spread a little earlier, because it was when the market started to get a bit jittery and a few investors were questioning whether we’d push to 4bp over. So we took the view that we’d rather set the spread a bit earlier than normal, before New York even came in. The rest of the timetable was the same. We got lucky that the extra volatility was when we were still running that usual process. If we’d tried to price in that instant it would have been a different consideration.
There hasn’t been much action since, but it’s about 1bp wider.
Geographical distribution
Europe 37%
Americas (ex US) 27%
US 22%
Asia 12%
Middle East/Africa 2%
Distribution by investor type
Central banks/official institutions 58%
Banks/private banks 32%
Insurance companies/pension funds 6%
Asset managers 4%
Market appraisal:
“…they had a similar result to NRW. They missed a few millions I heard but it was still a strong result.”
“...it looked a bit expensive. I would have thought the IPTs would be where they ended up. I’d have started at mid to high single digits.”
“…KBN didn’t pay a new issue premium, I reckon the pricing was in line with curve. Not hitting full subscription is unusual for them but it was unlucky on timing. Hopefully they can make it up.”
