Nova Ljubljanska banka's ambitions around a 10-year non-call five Tier 2 crumbled on Thursday, as the bank pulled the trade after launch.
The Slovenian lender was falling well short of its initial size target, with final terms set on a €120m deal. It had been initially hoping to raise €300m, but those expectations had already been downplayed when IPTs of the 10.25% area were announced, with the size refined to €200m–€300m.
Unfortunately for the issuer it was never able to get any momentum into the deal, despite the double-digit yield on offer. Books were just €200m when the yield was set at 10.25%.
"It seems the pricing levels didn’t manage to clear a benchmark volume and some of the investors in the book were uncomfortable going below a benchmark size," Archibald Kremser, CFO at NLB, told IFR. "What we have learned though is that there is interest in the market and from investors in NLB."
The yield was wide of the 9.5%–10% feedback collected by the leads. Even so, relative value worked against the trade, with other far more liquid instruments offering similar yields, such as a €1.25bn 10% AT1 placed by Deutsche Bank earlier in November.
A lack of local support also undermined the deal, with the lines of many domestic buyers already full. NLB had sold a €300m three-year non-call two senior preferred at 6% in July. "Clearly one hurdle for us is a fairly limited regional investor base compared to other recent smaller sized issuers," said Kremser.
The bank ultimately made the inevitable decision to pull the Tier 2. "The fact that they didn’t take the volume when it was available a couple of years ago is certainly hurting them now," said a banker away.
NLB has three Tier 2s outstanding, ranging in size from €45m to €120m, placed between 2019 and 2020 and callable from 2024 to 2025.
"To be fair they have also been a bit unlucky with markets turning south the last couple of days," said the banker away. "It was maybe still a bit early in the recovery for a Tier 2 from the region, but it was a tough result for them."
The Tier 2 was an attempt to renew efforts that had failed to get the same bond off the ground in January. Back in the first month of the year, NLB had appointed JP Morgan and NLB as lead managers for a Tier 2. Those leads were joined by Bank of America and Erste on the refreshed mandate.
Unlike many of the other CEE lenders, such as Raiffeisen Bank Zrt which issued earlier in the week, NLB does not benefit from being part of a wider banking network. That Raiffeisen Bank Zrt deal also got anchor support from the EBRD.
The Tier 2 had been intended to help NLB meet MREL requirements as well as strengthen its capital structure.
"There is plenty of time for us to meet the MREL targets and we still have the senior route," said Kremser. "But Tier 2 has an incremental value in terms of funding growth options, supporting the senior ratings and preparing for call dates. We see value in Tier 2 and will keep pursuing that route."
NLB is rated BBB by S&P while the Tier 2 had been expected to be rated BB.