SSA SNAPSHOT: Austria leads uptick in activity

SSA primary bond activity has picked up slightly today after there was only one live euro deal Monday from the United Mexican States, with the LATAM sovereign in the market with a EUR1.4bn long 8yr and EUR1bn long 12yr dual-tranche (details here).

Looking to make the most of the pre-FOMC/ECB window this morning are four names which all announced mandates during the previous session.

That included the announcement of a dual tranche (new 10yr and May 2049 green tap) from the Republic of Austria which could add EUR6-7bn to the overall tally.

Elsewhere, Swedish Export Credit Corp is bringing a new 10yr benchmark, Lower Saxony has set the size at EUR1bn for a new 8.5yr LSA and going longer on the curve is Ile de France Mobilites which is working at a 20yr tenor for its first ever EuGB - a green bond that adheres to the new EU Green Bond Standard (EUGBS).

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** The Republic of Austria (AA+/Aa1/AA+/AAA/AA+) on Monday mandated BofA Securities, Deutsche Bank, Erste Group, J.P. Morgan, Morgan Stanley and Raiffeisen Bank International to lead manage its dual-tranche issuance of a new EUR 10-year Reg S/144a eligible benchmark maturing 20 February 2035 and a tap of its Green RAGB 1.85% May 2049 (ISIN AT0000A2Y8G4).

Guidance has been released at m/s +51 area on the new 10yr and +80 area on the green tap.

The sovereign‘s first deal of the year comes 11 days after news that the sovereign would avoid an EU deficit procedure after convincing decision makers at the European Commission that it can keep its deficit to below a 3% threshold.

In 2022 and 2024 Austria opted to start the year with triple tranche deals totalling EUR6.25bn (7yr /19yr tap / 49yr tap) and EUR7bn (5yr green tap / 10yr / 25yr green tap) respectively, with a EUR5bn new 10yr sandwiched in between (4th Jan 2023).

We are anticipating a total deal size of EUR6-7bn for today's transaction which sees the creation of a new 10yr line and the tap of a May 2049 green bond. We envisage the new 10yr coming in the EUR5bn ballpark and an additional c.1.5-2bn from the longer dated tap although given the existing outstanding size of EUR6.65bn we perhaps shouldn't rule out a EUR1.35bn or EUR1.85bn size to take it to a more 'rounded' EUR8bn or EUR8.5bn.

Cover ratios have been increasing for the issuer in recent times but with a notable preference for taps and green bonds. On that note last year’s January issued triple tranche included the very same green bond that is being tapped today and the EUR1.25bn deal size was met with orders of EUR24bn (from peak of 25bn) for a 19.2x cover ratio - the highest ever recorded for the issuer.

The highest absolute order book to date is EUR42bn achieved in Sept 2021 (EUR5bn 15yr), and with the likes of France, Spain and the UK all seeing record demand for syndicated lines this month – it will be interesting to see what heights Austria can hit today.

** The German Federal State of Lower Saxony (AAA) on Monday mandated Commerzbank, HSBC, LBBW, NORD/LB and TD Securities to lead manage a EUR1bn no grow 8.5yr LSA transaction.

Books have opened this morning for the Aug 2033s at m/s +35 area guidance.

Lower Saxony is returning after its 5yr / 10yr dual tranche that opened markets on 2nd Jan.

Both of those tranches were sized at EUR1.5bn although returned very different demand figures - EUR4.15bn for the 5yr and EUR1.9bn for the 10yr.

Timing may have been a factor given that the deal was executed in the first short week before the market opened properly.

The new 8.5yr will be added to a fairly busy curve for the LSA issuer with bonds in the vicinity suggesting a fair value of m/s+37-38a.

However, one banker running the trade was seeing fair value tighter at around m/s +34 when looking at other recent LSA issuance. In turn that means the borrower is offering a 1bp pick-up at initial guidance.

** Ile-de-France Mobilites (Aa3/AA-) has hired BNP Paribas and Credit Agricole CIB as Green Co-Structuring Agents and BNP Paribas, Credit Agricole CIB, HSBC, Natixis and Societe Generale to act as Joint Lead Managers for a EUR 20yr EuGB benchmark transaction maturing 25-May-2045.

Marketing has started for the trade at OATs (FRTR 3.25% 05/45) +25 area, equivalent to around m/s +145 area, and follows a two-day roadshow which straddled the weekend.

The trade marks the first EuGB in the SSA space and comes after A2A S.p.A opened up that particular market last week in corporates.

IDF is sticking with a long-dated bias to its funding requirements with a long 20yr tenor.

We think that we are likely to see a EUR1bn deal size given recent issuance and should follow the pattern of French issuers of attracting significant order attention despite spreads over OATs tightening over time (although still look cheap on mid-swap basis).

** Swedish Export Credit Corporation (AA+/Aa1) on Monday appointed Credit Agricole CIB, DZ BANK, ING, J.P. Morgan and SEB to lead manage a EUR 10yr benchmark issue.

Marketing has started for the Feb 2035s at m/s +61 area guidance.

SEK has historically relied upon dollar funding and even since 2022 when it started issuing in euros the skew is heavily toward the dollar.

Indeed, USD12.8bn and EUR4.05bn has been issued since the start of 2022.

Visits to the EUR market had been twice a year for totals of between EUR1.7bn and EUR1.85bn but last year SEK only approached the euro market once for a EUR500m 7yr green.

That represents the longest bond on the SEK curve and so a new 10yr is a big step for the issuer in creating a 'full' benchmark curve.

With such an extension, it also makes ascertaining fair value for the new line rather subjective, although one source close to the deal saw it in the m/s +mid 50s area.

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