SSA: CdP tempts wary euro investors with juicy IPTs

9 min read
Abhinav Ramnarayan

Italian majority state-owned lender Cassa Depositi e Prestiti (CdP) was set to price a €750m 10-year note at fairly tight levels after luring investors to the trade with a juicy initial level.

The Baa2/BBB-/BBB+ rated issuer set a final spread of 95bp over mid-swaps on the April 2025 note, with pricing expected today.

Initially, the issuer began marketing the deal with a 10bp new issue premium as it sought to navigate a tricky euro market.

The ECB’s €60bn-a-month asset purchase programme has pushed eurozone spreads tighter, to the point where investors are struggling to see value in primary deals, particularly from core eurozone issuers.

A recent trade by EIB illustrated this: the supra raised just €2bn from a 10-year bond, well short of the usual size of its benchmark trades.

CdP, being a peripheral issuer, is less affected, but still has to offer a decent concession at least at the initial stages to get a deal done, said a lead banker.

“The way to look at it is, you may be offering more of a premium to fair value than a couple of months ago, but it is still tighter to mid-swaps because of the recent rally,” he said.

“A month or so ago I can imagine CDP pricing tighter to BTPs but wider against swaps, perhaps around the 130bp-140bp level,” he said.

The issuer, rated Baa2/BBB-/BBB+, set IPTs on the April 2025 note at 105bp-110bp over mid-swaps.

Italian 10-year sovereign bonds were trading at 74bp over mid-swaps pre-announcement according to Tradeweb. CDP tends to trade 20-25bp back of BTPs, suggesting a fair value of 94-99bp.

This would suggest a roughly 10bp premium was on offer at the initial stages.

However, books were opened at 100bp area over mid-swaps, suggesting a much lower concession, and the final spread of 95bp suggests almost none.

Rival bankers said the deal had started off at generous levels and said some investors may not be happy with the steep revision.

“However, I can understand why they came wide because right now there is an ongoing debate about what NIP is required in the euro market after QE. I think it was the right approach, even if the initial levels were a little too wide,” said one banker away from the deal.

He said the note came 26bp back of where he saw Italian BTPs trading.

“CdP tends to price high teens to low 20s over BTPs, so I think that is a very good level in the current market - I think overall it is a very good deal for this late in the quarter when liquidity is low,” he said.

The Reg S deal is expected to be today’s business via Barclays, Mediobanca, SG CIB and UniCredit.

Finland plans US dollar benchmark in 2015

Finland is planning to issue a benchmark US dollar transaction this year, as well as a second euro benchmark issue in the second half of the year, the country’s state treasury said in a statement.

Earlier this month, the Nordic nation revised its net borrowing requirement forecast for the year up by €445m to €5.2bn.

“The EMTN programme complements the euro-denominated issuance, and a benchmark-sized USD issue is foreseen later this year, subject to market conditions and timing of the refinancing needs,” the state treasury said.

Further tap auctions of euro benchmark bonds are also expected in 2015, the timing, frequency and size of which will be adjusted according to secondary market liquidity conditions.

The protracted downturn in the Finnish economy means that public finances will remain in deficit this year. The budgetary position is also under pressure because of an ageing population, particularly in the municipal sector, according to the state treasury.

Finland was downgraded by one notch to AA+ in October 2014.

Poland pushed long to offer yield above 1%

The Republic of Poland gave one of the clearest examples yet of the yield-squeezing effect of the European Central Bank’s bond buying programme on high grade EM names after the sovereign had to stretch the maturity on a new deal to 12-years to offer investors a yield above 1%, writes IFR’s Michael Turner.

Poland, rated A2/A-/A-, printed its €1bn May 2027 bond at a yield of 1.022%.

“We needed to go as far as 12-years to get 1%,” said a lead on the deal.

The ECB’s €60bn a month quantitative easing programme is forcing investors to look outside of their usual stomping grounds in the hunt for any semblance of return when core European names are trading with negative yields.

“The euro bid has never been stronger,” said a syndicate official away from the Poland trade.

Poland issued the new bond at a spread of 35bp over mid-swaps, 5bp inside initial price thoughts and at the tight end of final guidance plus 35bp-40bp.

At the IPTs stage, one banker away from the deal said he estimated “around a 15bp-ish NIP [above] fair value.” A lead agreed that this seemed about right, putting the final concession at around 10bp.

Bankers said, however, that fair value was hard to determine. The official away from the deal said: “The Poland curve [has a] very high cash price at that part of the curve so it is very hard to quantify the impact of that,” said the banker away from the deal.

Poland’s euro-denominated 2025s were bid at 142.49 on the day of the new transaction, according to Thomson Reuters.

The lead agreed that this made pricing the new bond tough, and added that, despite Poland having a well-defined euro curve, other issuers still had to be considered.

“We looked at some comparables like Slovakia and Slovenia, just to see the steepness between 10-12 years,” said the lead.

Given the tight nature of the pricing, demand was less than in previous Poland euro deals, with an order book of about €1.8bn. In contrast, in January 2014, Poland sold a €2bn 10-year bond off a book of more than €4bn, though that note was priced at 87bp over mid-swaps to yield 3.032%.

“The orderbook was good, although it was not a €4bn-5bn blowout trade,” said the deal lead.

Another banker close to the Poland deal added: “There’s a disconnect between distorted secondaries and whether those levels indicate appetite for new issuance.”

The bond has traded up a touch from its 98.336 reoffer price to 98.969 on Tuesday, according to Tradeweb.

Fund managers bought 44% of the trade, with central banks and sovereign wealth funds - both common rates buyers - taking up 22% of the book. This compares to 13.5% of central bank and SWF buyers on Poland’s last euro deal in January 2014.

Other buyers on the new deal include insurance and pension funds, which took 21% and banks and private banks with 13%.

German accounts took 21% of the new trade. Asia took 18%, Poland bought 14%, French names took 11%, UK accounts 8%, Italian 6%, Switzerland 5%, Austria 4%, Middle East 3%, Scandinavia 5% and other European names around 5%.

Barclays, Citigroup, Santander and Societe Generale arranged the deal.

Romania appoints banks for Eurobond

The Republic of Romania has picked Citigroup, HSBC, Raiffeisen Bank International and UniCredit to arrange a new euro bond, according to sources.

Romania’s last deal was a €1.5bn 10-year bond that printed at a 2.973% yield in October last year.

Those bonds were yielding 1.941% on Tuesday morning, according to Tradeweb.

An official in Romania’s treasury declined to comment on which banks had been mandated. The four banks declined to comment.

Romania is rated Baa3 by Moody’s, BBB- by Standard & Poor’s and BBB- by Fitch.

Cassa Depositi e Prestiti