HAA receives top ratings but waits for EC stamp of approval
LONDON, Nov 30 (IFR) - A government-guaranteed subordinated Tier 2 bond for Austrian Hypo Alpe-Adria Bank, which will be the first of its kind, will surface as soon as the European Commission signs off on the guarantee, bankers said this week.
The issuer, which mandated Citigroup, Commerzbank, Deutsche Bank and Morgan Stanley last week for a EUR1bn 10-year subordinated deal, finishes its roadshow today for the trade, which has received preliminary Aaa/AA+/AAA ratings from the three major agencies, in line with the sovereign.
"We are waiting for the EC approval of the guarantee, which is expected in the second half of next week, so it's likely the deal will follow the week after," said a banker mandated on the upcoming transaction.
The expected rating of the notes is sensitive to changes in Austria's sovereign ratings: an Austrian downgrade would lead to a downgrade of the subordinated notes.
The leads said they will look at the sovereign, as well as explicitly government-guaranteed Austrian agencies OeBB and Asfinag, to calculate relative value.
OeBB's 4.875% June 2022 issue was bid at mid-swaps plus 24bp, according to Tradeweb data on Friday at 12.30GMT, while an interpolation of Asfinag's 3.375% July 2019s and September 2025s showed that a hypothetical November 2022 issue would trade around plus 19bp on the bid side.
Comparing these levels with Austria's 3.4% November 2022s, trading at a mid-asset swap level of 9.4bp on Tradeweb, shows that an Austrian agency would have to pay a premium of around 10bp-15bp to the sovereign to issue a new 10-year.
A banker on the deal said it makes sense to look at the aforementioned reference points but that it would be necessary to add an additional concession for a rare and lesser known issuer like HAA.
"Ultimately, investors should see this as the cheapest way to buy Austrian government-guaranteed risk and view it as a one-time event," said the banker.
"But beyond that, it is difficult to go into specifics at this stage."
Although 100% state-owned banks have raised Tier 2 debt in the market before, it is the first time that a government will explicitly guarantee a new subordinated debt issue from a wholly owned entity.
"The roadshow went pretty well and we are now just collecting data," said a banker.
"During the course of investor meetings, a number of people were keen to understand how the government guarantee will work but were positive about the prospects of a deal of this kind."
Under the terms of the issue, even if the bank were to go bust in five years and the bonds were written down to zero, Austria would continue to pay interest and principal.
Bankers said this was a way for the government to avoid using up liquidity in order to inject capital into the institution.
Austrian regulators have given the bank until the end of the year to come up with EUR1.5bn of extra capital and until the end of March 2013 to raise another EUR700m.
As well as the Tier 2, which will be sold to private investors, the state will directly inject cash into the bank. Domestic accounts are expected to provide the bulk of demand for the Hypo Alpe-Adria deal, said another lead manager.
(Reporting by Aimee Donnellan; additional reporting John Geddie; editing by Helene Durand & Philip Wright)
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