Two public sector issuers snuck ahead of the European Union on Monday, which announced plans to tap a long-dated line for its first syndication of the year in a test for the so far unprobed 30-year point in the euro SSA market this year.
Ile de France and Lower Saxony got mid-curve prints, before investors’ eyes turn to the supranational which mandated BNP Paribas, JP Morgan, NatWest Markets, Nomura, and UniCredit for a tap of its 3% March 2053.
The deal does not completely match-up with what many bankers had envisioned, especially given the €80bn the issuer needs to raise in the first half of 2023. Some had expected a dual-tranche offering, with a mid-curve security joining the 30-year bond. “The real money community, some of the treasury [buyers are] not extending out that far… It might be more challenging from a tenor perspective,” said a lead on the Ile de France euro deal of the EU’s announcement of its mandate.
He added that the bond would likely come “cheap”: “In this market there’s a price for everything.”
The inversion of the swap curve has made raising longer dated funding trickier for public sector issuers. A banker away from the new mandate said the week before that, “They will really have to pay up a little bit.”
The euro swap curve is showing a negative 30bp differential between the 20 and 30-year marks.
Some market talk was expecting a deal of around €2.7bn, though the IdF lead is expecting a print of more than €3bn.
The pre-EU slot
The two Monday deals came with long eight-year tenors, though that was viewed as a coincidence rather than anything being particularly attractive about the maturity.
Ile de France found the greater interest of the pair with its sustainability offering. The leads Bank of America, Credit Agricole, Natixis and Societe Generale gathered more than €2.3bn of demand by close. The French region took its maximum size of €600m from the book. It tightened the spread by 4bp from guidance to print at 46bp above OATs.
The deal offered a minimal new issue concession, the lead putting it at flat to 1bp. He put the mid-swaps spread at 20bp, though he noted the level was “jumping around a bit”. A banker away said the French name offered roughly 17bp above mid-swaps.
“When we look at these books from the perspective of quality, granularity and quantum, it did tick all three boxes,” the IdF lead said. “The ESG aspect certainly helps. We’re seeing a renewed focus on that from the treasuries, but that helped with the asset manager or your real money community as well, which has been a little bit more absent year-to-date.”
“For a lot of investors they are one of the best ESG names in the market,” the banker away said. “For [investors], the ESG aspect is a big, big [attraction to] this name. The demand for ESG is still significant and you clearly see a difference in the stickiness of the order book when it's an ESG trade versus conventional.”
The IdF print maintains the issuer’s sparse but regular presence in the euro ESG market. It has printed at least once a year there since 2020.
A better outcome
Lower Saxony appeared alongside IdF on Monday, also with a long eight-year.
The German region got books of more than €1.15bn for a €750m trade – including €150m of JLM interest – following marketing by DekaBank, Helaba, HSBC, NordLB and TD Securities. It tightened 1bp from the guidance of mid-swaps flat area, leaving a 1bp-2bp new issue concession.
Rising returns helped smooth the deal’s passage, TD Securities syndicate banker Mark Byrne told IFR: "The German Laender issuers enjoy somewhat strong demand from German regional and savings banks. With Laender supply in H2 2022 down about 65% from H1 2022 these buyers had little to buy. However now, they are fully reengaged in the market and enjoying the higher yields and wider spread versus the mid-swap that is on offer."
The deal offered Lower Saxony a better-looking outcome than the last time it approached the euro market, when its “aggressive” tightening – as one lead at the time put it – led the 10-year deal to lose half its book.
But building a hugely oversubscribed book is also not a priority for the sector.
“While most SSA issuers are beholden to shareholders or taxpayers," Byrne said, "the German Laender are acutely aware of this and most have a competitive bidding process from their banks for underwritten deals. Therefore it's fair to say price is a key consideration ahead of a transaction and a massive oversubscribed book is not necessarily an aim.”