KfW and EIB make further dollar push

The European Investment Bank re-established its US dollar access last week with a five-year bond issue, while German agency KfW led the way yet again in testing appetite with a rare 10-year benchmark bond in the currency.

Both issuers are intent on maintaining a strong foothold in the dollar market, where investors are more cautious than ever about eurozone borrowers.

Both the EIB’s US$3.5bn deal, which was bigger than some bankers had expected, and KfW’s 10-year US$3bn deal – the first from a European issuer in that maturity this year, and only the second from a public sector borrower, following on the heels of Freddie Mac – were seen as healthy developments.

“Many long-standing EIB investors participated, and their loyalty helped to deliver an oversubscribed order book that required an increase to the originally planned notional,” said Bill Northfield, head of SSA syndicate and origination at Deutsche Bank.

S&P’s affirmation of the European supra’s AAA rating also gave the issuer a boost, bankers said.

Nonetheless, dollar supply from European SSA issuers remains weak and the EIB said it might not match its Global dollar issuance of 2011, which included four three-year bonds, four five-year bonds and one 10-year.

“I’m not sure we will be as frequent in dollars this year. We would expect to do more in euros as it seems to be the more active market and more widespread in terms of distribution at the moment,” said Sandeep Dhawan, head of US dollar funding at the EIB.

Although the EIB drew orders in excess of US$4bn from about 70 investors, Dhawan said the book “built up gradually rather than explosively”.

“Since last year there has been increased market volatility generally, and investors who were willing to give indications of interest prior to the launch of a deal have become increasingly reluctant to do so,” he said. “As a result, when you open books there are not as many orders to put in immediately. This is true more generally for the EIB in dollars, but is not a phenomenon seen in euros presently.”

Challenging maturity

Meanwhile, the order books for KfW’s 2.625% January 2022 bond were just shy of US$4bn, with a strong US participation rate of 45%.

“We aim to do a 10-year deal in dollars at least once a year. The maturity is always a challenge, and the question is whether you can combine the demand from the traditional Asian base with demand from the US,” said Horst Seissinger, head of capital markets at KfW.

However, the issuer paid a premium of about 10bp–15bp to its 2.375% August 2021 bond and a 19bp–20bp pick-up to the Freddie Mac dollar deal of the same duration, which was priced last week at Treasuries plus 52bp and has since tightened to plus 47bp/48bp.

The KfW bond tightened by about 5bp to swaps and Treasuries on Friday.

Klaus-Peter Eitel, vice-president of capital markets at KfW, said the borrower had paid a fair price.

“A US$4bn book shows that the price was appropriate. If [the book] had a volume of, let’s say, US$7bn–$8bn, this could have been a sign of inflated orders or too generous price guidance,” added Horst.