Rating: Aa1/AA+
Amount: Eu4bn OLO 48
Maturity: 28 March 2022
Issue/re-offer price: 97.315
Coupon: 4%
Spread at re-offer: 4bp over the 3.75% April 2021 OAT (indicated: 2bp to 5bp)
Launch date: Tuesday 16 May
Payment date: 24 May
Joint books: Calyon, Citigroup, Fortis, Goldman Sachs
Borrower's comment:
Given the market volatility, to issue a Eu4bn 15 year is quite an achievement.
Despite the bearish environment, we managed to attract a Eu4bn book on Monday and finally reached Eu8bn on Tuesday, which is a good result. All Eu8bn of orders were at a spread of plus 4bp or tighter, which gave the deal strong support.
The joint leads suggested that we issue Eu5bn but we felt it was better to do Eu4bn and maximise the potentiality of our secondary market performance rather than give priority to the size.
We have a good track record in secondary market performance in syndicated deals and it is important for us to maintain that. We did not want to overload customers but preferred to create some scarcity.
We also want to keep our investors happy — that is the most important point for us, especially given the fact that we already trade at tight levels to the triple-A countries when we are after all a double-A credit.
The issue is priced at 4bp over the OAT, equating to mid-swaps minus 16.5bp, which was only 2bp over the interpolated OAT curve. This is a great improvement over the price of our previous 15 year in 2002 when we paid 7.2bp over the interpolated OAT curve.
We have paid a slight concession to our own curve of 1bp, which is understandable given the richness of the OLO 2017 and the OLO 2028 surrounding the newly issued bond.
The notable aspects of the distribution were the large portion placed in France, which accounted for 36% of sales and the 34% take-up by asset managers.
The insurance and pension percentage was relatively low at 8% but that is not surprising given the volatility in the market. We do expect them to come into the deal in the secondary market, however, when the market stabilises.
With this issue, we have raised Eu12.2bn including Eu9bn of syndicated issues. We have three auctions left, one in July, one in September and one in November and expect to raise Eu3.5bn in each. So this is probably our last syndicated issue of the year.
Bookrunners' comment:
The market is very volatile but Belgium was able to attract an order book of over Eu8bn for its transaction, reflecting enthusiasm for the name, driven by the country's impressively consistent high primary surplus and steady reduction in debt to GDP ratios over the last 13 years.
Belgium was trading like a AAA even before Moody's raised the outlook to positive at the end of March.
Initial price guidance was 2bp to 5bp over the OAT. This was quickly narrowed to 3bp to 5bp and then adjusted on Tuesday morning to plus 4bp where the deal was priced.
With 2.25bp on the curve between March 22 and April 21, this equates to a pricing less than 2bp over the OAT curve, equivalent to mid-swaps less 16.5bp. In terms of a pricing through the swap curve, this deal is the richest 15 year euro government syndication since the introduction of the euro.
This pricing results from an outperformance of Belgium versus France and Germany throughout this year. With the exception of the last five year syndication (OLO 45 in January 2005 which priced at 1.7bp over the Bobl curve), this is the richest pricing for any Belgian syndication.
From the outset, the issuer signalled its intention to prioritise secondary performance versus volume by expressing flexibility on deal size. The final order book exceeded Eu8bn from over 130 investors.
By sizing the deal at Eu4bn, we had a difficult allocation process, but one that best positions the issue to outperform.
We achieved a broad distribution with France taking 36% of the paper, the UK 25%, Belgium 12%, North America 10%, Italy 8% and others 9%.
By investor type, we had banks taking 35% of the issue, asset managers 34%, hedge funds 21%, insurance and pension money 8% and central banks 2%. The issue is widely seen as offering value here and we've already seen good secondary buying from insurance and other real money accounts.
With the launch of the OLO 48, Belgium now has on the run benchmarks at 10, 15 and 30 years.
Market appraisal:
"...we had some good quality orders — two from central banks outside the usual suspects.
There is more interest in the short-end at the moment and this was also reflected in the poor auction of a new 10 year Bund this week, which had a bid to cover ration of 1.1 so although Belgium got away with their issue, it wasn't a particular success."
"...Belgium had traditionally issued Eu5bn transactions and I heard the book for this deal was Eu8bn so it is strange that they printed only Eu5bn.
The initial talk was 2bp to 5bp over the OAT, then it was refined to 3bp to 5bp. To price at the back end of the range must have been disappointing.
It is harder at the moment to get longer dated deals away. A few weeks ago, you could syndicate a 15 year with your eyes closed and with no new issue premium. Clearly times have changed."
"...the general trend has been curve steepening of late and while there is a lot of issuance in the longer end, many accounts are more interested in the shorter dates at the moment.
The price guidance was 2bp to 5bp over the OAT and the book built to a good size early on in the process. Perhaps there were too many trading accounts in their book at the wider end because guidance was revised to 3bp to 5bp and the deal was priced at 4bp.
Given the sizeable book — reportedly Eu8bn — I am surprised that they didn't print Eu4bn and can only assume that a lot of the orders were at 5bp."
"...the price talk was a little too aggressive. Starting at 2bp to 5bp looked tight against the OAT and it certainly looked tight against Libor. My initial read on that was around less 16bp/19bp and compares with the last sovereign 15 year, for Austria which came close to less 10bp back in January.
Swaps have moved and markets have moved but this did look rich. Fundamentally that is the only problem with the deal — 15 years is well bid and they got a decent sized book together.
However it is clear that a lot of demand was at a slightly wider spread. Otherwise Belgium is a well respected credit and investors want to buy their paper. There is just a limit at what price they will buy it at."
