Slovenia successfully diversified its sources of funding by issuing its first US dollar benchmark note in nine years on Wednesday.
Assessing how best to market the benchmark 10-year transaction was no easy feat, though, with dollar investors not as familiar with the credit as they once were and leads having no established curve in the currency off which to price the new issue.
Taking the Balkan sovereign's euro levels and swapping them directly into dollars would have been one method, but the outcome would have potentially been too tight to give the trade much traction with the US investor base. One banker said Slovenia could issue a new euro 10-year at around mid-swaps plus 40bp, which swapped into dollars would be somewhere in the region of Treasuries plus 60bp.
Instead of solely using Slovenia’s euro curve, those leading the deal looked at a number of other more established dollar issuers to guide pricing.
“There are other names from high-grade and the EM space,” said a second banker. “There are so many different ways to look at it. You also have some of the frequent names, like Poland and Israel. Then you have the SSA peer group; the supranationals and the provinces.”
In the end, Slovenia (A3/AA–/A) was able to issue a US$1bn 5% September 2033 at 80bp over Treasuries. According to IFR calculations and LSEG data, that comes out in euros at around mid-swaps plus 61bp. Slovenia has a €1.25bn 3.625% March 2033 at about mid-swaps plus 29bp.
“The important thing about this exercise was that it was an investor diversification trade,” said the first banker. “From a prudent funding strategy perspective, it makes sense for any issuer to diversify their investor base.”
The deal was announced at IPTs of Treasuries plus 100bp area and the book exceeded US$3.85bn at its peak, before falling back to over US$2.7bn, including US$150m of lead manager interest.
The investor base for the new transaction was skewed heavily towards traditional dollar SSA buyers rather than EM accounts. The sovereign trades too tight for most of these buyers, said bankers, and its bonds are not eligible for the JP Morgan Emerging Market Bond Index, against which many EM investors are benchmarked.
Slovenia last issued a dollar benchmark in 2014, when it placed US$1.5bn 4.125% February 2019s and US$2bn 5.25% February 2024s. However, the sovereign issued in smaller sizes in 2017 and 2018 as part of bond exchanges.
Barclays, BNP Paribas, Citigroup, Deutsche Bank, Goldman Sachs and JP Morgan were the lead managers on the new deal.
(Additional reporting by Luke Acton)
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