RBI Tier 2 bond flooded with orders despite HAA troubles

Thu Feb 13, 2014 7:02am EST

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LONDON, Feb 13 (IFR) - Raiffeisen Bank International has been swamped with over EUR2.25bn of orders for a new subordinated bond, suggesting the Austrian banking sector remains well insulated from the problems at Hypo Alpe Adria Bank.

The Austrian government has been looking for a wind-down solution for HAA over the past week, with plans for getting private banks to back a bad bank solution now looking less likely.

The government is now looking at the possible creation of a run-off entity owned by the state instead. Luckily for RBI and others, this has had almost no impact on the CDS or bond levels of the country's banks.

"A number of investors expressed concerns about HAA on the call yesterday but they know that just because there's one bad apple doesn't mean the whole banking system is rotten," said a banker at one of the lead managers - Bank of America Merrill Lynch, BNP Paribas, Citi and RBI.

RBI doubled its capital base with a EUR2.78bn equity raise in January, helping shore up its balance sheet and bringing it a step closer to repaying its state aid before the 2017 deadline.

But the bank, like many Austrian institutions, has some legacy issues, and in September raised its forecast for bad loan provisions, prompting concerns about its emerging markets exposure.

Peers, including Erste Group Bank and UniCredit Bank Austria, have also had to boost bad loan provisions as economies in Central and Eastern Europe suffer.

RBI, emerging Europe's second-biggest lender, began testing interest for the 11 NC6 bond at mid-swaps plus 350bp area, revising that to 340bp area as orders topped EUR2bn.

The Austrian issuer sold a EUR500m 10-year bullet Tier 2 with a 6% coupon in October of last year. That bond was considered the key comparable for pricing the new issue, and was bid at a yield of 5.196%, equivalent to mid-swaps plus 333bp, according to Tradeweb.

However, a banker involved in the deal had the bond trading in the mid-swaps plus 320s context pre-announcement.

For pricing, he explained that 0-5bp was added to the 320s figure to account for a curve extension, 0-10bp for inclusion of a call, and 15bp of new issue premium. (Reporting by Aimee Donnellan; Editing by Helene Durand and Julian Baker)

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