Land NRW finishes 2020 funding amid overwhelming demand

LBBW, Natixis, NatWest Markets, Rabobank, TD Securities and UniCredit ran the books for the deal, after holding a round of investor calls last week.

The transaction hit screens on Monday morning and was priced in the early afternoon.

“We typically mandate in the afternoon and execute intraday, but with EFSF coming out with a big transaction and a few other names on screens, we felt that Monday morning was a good slot,” said Axel Bendiek, head of funding at Land NRW.

The leads opened books with guidance of 10bp over mid-swaps, which Bendiek said offered a 4bp-5bp new issue concession. However, demand was overwhelmingly strong and the leads tightened to 9bp area, then fixed the spread at 7bp, leaving 1bp-2bp of concession.

“That’s the largest move we do in the primary market,” said Bendiek. “Anything more than that is too big. We were pretty clear on where fair value was because we have SRI bonds in 2034 and 2039 and a conventional bond in 2036, so we had good reference points.”

Despite the 3bp tightening, the book continued to grow, closing with around €6.4bn of orders. “We had some orders drop at the final spread, but other orders upscaled, so the size of the book grew,” Bendiek said.

The size of the deal was capped at €2.4bn, so the issuer was free to focus on price.

“We actually had larger eligible assets — around €6bn — but simply didn’t have that much in the way of funding needs, so we kept the size down,” said Bendiek.

The eligible assets include improvements to NRW’s health infrastructure — something the issuer’s framework has always allowed, but for which it has never before had sufficient funding needs to justify including in a sustainability bond’s proceeds.

As with the rest of the euro market, Bendiek has been planning his issuance schedule around the arrival of the funding for the European Union’s SURE programme.

“It’s the elephant in the room,” he said. “Initially, we were waiting for them to kick off, intending to come after them, but since they’ve postponed, we’re concerned that, if we wait, we’d be squeezed into a tight window between the EU funding and the US elections. December is coming, so we’ve moved our funding forward.”

Bendiek confirmed that, with around €26.2bn of funds raised in 2020, its public new issuance was at an end for the year. Around €11.2bn of its bonds this year have been raised as part of the state’s Covid-19 rescue package.

However, NRW’s fellow Laender are still funding actively. “There are plenty of names in the pipeline still,” said a public sector debt capital markets banker. “A few of €1bn, and some more sub-benchmark size.”

The Laender have been active but unpopular borrowers throughout September — few of their deals have reached full subscription.

“We take a different approach from some of the other Laender,” said Bendiek. “We have a larger programme, so we want to provide fair value plus appropriate concessions and to issue in larger sizes. Some of the other Laender prefer aggressively priced sub-benchmark deals.”

Although distribution statistics were not available at the time of writing, Bendiek confirmed that little if any of the deal had been placed with Asian investors. While this is to be expected during the Golden Week holidays, he pointed out that even before the holidays, demand from Asia had been quiet. “We used to place 10%-20% to Asia, but just now that’s not the case,” he said. “The central banks in particular are yield investors and it’s very expensive for them.”