Poland’s first Swiss franc issue as an EU member capitalized on the country’s new-found status to cement its reputation in the market following its 2004 debut.
“The pioneering work they did in 2004 was then translated into the size they achieved in the second deal. Now they can come back to the market whenever they like,” says Richard Luddington, head of central and east European debt capital markets at sole bookrunner UBS. The bank also managed the previous deal.
The April 14 issue was split into two tranches, one for retail and one for institutional investors. The first, five-year block raised SFr400 million ($328 million), while the second was for 10 years, extended from seven to accentuate the differentiation. The longer maturity proved a great success, with the original amount of SFr600 million being increased to SFr1.5 billion to push the total value of the deal up to SFr1.9 billion.
Tapping the Swiss franc market enabled the government to pay lower interest rates than on euro issues and has also helped to diversify its range of funding sources. The success of the deal, in the traditionally conservative market, is an illustration of Poland’s progress over recent years. Part of the proceeds were earmarked to pay off Paris Club debt, with the rest directed towards day-to-day funding requirements.
Polish households have proved similarly attracted to the low interest Swiss franc market. In recent years, the portion of the country’s mortgage markets denominated in the currency has swelled rapidly, prompting a warning from the central bank that consumers don’t fully understand the risks involved. Banks, meanwhile, have been able to hedge their exposure thanks to the rapidly developing FX market.
S&P has downgraded its positive outlook on the sovereign to stable on account of political uncertainty over structural reforms. But the agency still highlights the country’s robust economic growth at 3.5%-4%, low single-digit inflation and hefty inflows of foreign direct investment. It is these positive credit fundamentals, and the prospect of joining the eurozone, that have enticed investors to Poland’s story, according to bankers.The spreads on its benchmark bonds have improved as a result over the last couple of years, as Poland makes steady gains in the eyes of international investors.
Issuer: Republic of Poland
Amount: SFr400 million, SFr 1.5 billion
Date of launch: 14 April 2005
Maturity: 12 May 2010, 15 May 2015
Coupon: 1.875%, 2.625%
Lead manager: UBS