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KommuneKredit debuts in sterling as demand hots up

A pair of issuers were able to access sterling in size this week as European investors increasingly seek to buy in the currency.

Denmark’s KommuneKredit was able to reach its maximum target size with a first sterling benchmark on Thursday, while the European Investment Bank tapped a February 2019 line for £500m.

The trades come as the European Central Bank’s Public Sector Purchase Programme drives spreads to government curves tighter in euro-denominated bonds and investors, such as German and French real money buyers, look for alternatives to the currency.

“We have seen many issuers this year look at the sterling market," said an SSA syndicate official at one of the leads on the EIB’s deal. “The ECB buying programme is definitely a factor at play, and the euro/sterling basis swap helps justify issuing in sterling [for euro-funding borrowers].”

The involvement of offshore investors has helped to create business for names such as EIB in sterling in 2015.

“It has been in part helped by a decent offshore bid outside UK real money, which is part of an increasing scene in sterling and also dollars,” said the banker.

HSBCRBC Capital Markets and Scotiabank priced a £300m December 2018 for KommuneKredit on Thursday at 29bp over the 1.25% July 2018 Gilt. That was at the tight end of guidance of 30bp area over.

The deal attracted more than £400m of orders. The issuer was looking to do £250m-£300m.

At the final pricing level the deal was about in line with the secondary curves of peers such as Norway’s Kommunalbanken in sterling.

While UK demand dominated the deal — 64% of it was placed in the UK — investors in Europe and Latin America were also prominent, taking home 19% and 10% of the allocations, respectively. Those in the Middle East and Africa took 7%.

By type, banks took over half the deal (51%) while central banks walked away with 33% and fund managers 16%. 

EIB in bumper tap

EIB, meanwhile, hit the belly of the curve on Tuesday.The supranational added £500m to a 1.5% February 2019, taking the outstanding on the line to £2.5bn.

Leads Barclays, Credit Suisse, HSBC, RBC Capital Markets and TD Securities priced the tap at 19bp over the 4.5% March 2019 Gilt, in line with guidance of 19bp area.

The final book was in excess of £600m.

Tuesday’s deal is EIB’s sixth syndicated sterling trade in 2015.

Transport for London on April 17 added to a burgeoning green bond market in sterling by selling its inaugural deal in the format at a level inside initial price thoughts (see online and bond comment for further coverage).

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