By Ben Edwards
Belfius Bank is seeking to sell the first Belgian covered bond
Monday, the latest country to pass legislation to allow its' banks
to issue this type of debt.
The Belgian lender will price the 1.25 billion euros ($1.59
billion), five-year, covered bond at 45 basis points over the
reference midswap rate, revised down from initial pricing in the
area of 55 basis points.
By contrast, Norway's Terra BoligKreditt last month sold a
five-year covered bond--widely seen as the safest debt banks sell
because they are secured against a pool of highly rated assets,
typically residential mortgages or public loans--at 35 basis points
over midswaps.
State-owned Belfius was formed from the remnants of Dexia Bank
Belgium, which was bought by the Belgian government last year after
bailed out Franco-Belgian Dexia Group was broken up in the wake of
the financial crisis.
Belgium's five-year benchmark government bonds are currently
trading at around 20 basis points over midswaps, according to
Tradeweb.
As a yield spread over the Belgian government, Belfius is
offering a very good pick up, said Richard Kemmish, head of covered
bond origination at Credit Suisse.
"The most interesting thing about (the Belfius bond) is the
pricing dynamic--it's not the first covered bond based on Belgian
mortgages, it's the first based on Belgian law," he said.
French covered bonds have been backed by Belgian residential
mortgages before, which provides another way of measuring the
relative value of Belfius's deal, he said.
French financial group AXA Bank Europe SCF has covered bonds
outstanding that are backed by assets including Belgian mortgages.
Those that are maturing April 2017 are trading at around 27 basis
points over midswaps, meaning Belfius's bonds are cheaper for
investors to buy, Tradeweb data show.
Orderbooks for Monday's sale reached around EUR5 billion,
according to one of the banks running the deal, suggesting healthy
demand.
"The idea of an inaugural deal is to get as many investors in as
possible, hence the attractive price of the bond," said a syndicate
banker working on the sale.
The Belgian government introduced its draft covered bond
legislation in July, which has since been enshrined into law.
Belgian banks have previously relied on the senior unsecured
bond market to raise cash, but with the euro-zone debt crisis
pushing up unsecured borrowing costs, the need for an alternative,
cheaper form of funding became more urgent.
Belfius's peer KBC Group Monday said it plans to meet investors
this week about issuing its own debut covered bond.
Deutsche Bank AG, HSBC Holdings PLC, Natixis, Nomura, Rabobank
and Belfius are the banks running Monday's sale.
The bond is expected to be rated AAA by Standard & Poor's
Corp. and Fitch Ratings.
Write to Ben Edwards at ben.edwards@dowjones.com
