UPDATE 2-Piraeus kick-starts Greek bank return to wholesale funding

Tue Mar 18, 2014 5:53am EDT

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(Rewrites throughout, adds quotes, background and pricing information)

By Aimee Donnellan

LONDON, March 18 (IFR) - A mixture of hedge funds and real money accounts are backing Greek lender Piraeus Bank's return to the public bond market after a four-year hiatus, fuelling hopes that the country and its banks are on the road to recovery.

Piraeus is taking orders on the three-year senior unsecured bond at a yield of 5.25%-5.5%, after attracting over 1bn overnight from investors, according to a lead manager.

"All of Greece's banks will be looking closely at this deal and, although they may not follow it up immenently, they will all be planning to come to the market during 2014," said a syndicate official.

"This is a one-way bet for investors who will struggle to find this kind of risk anywhere else," said another banker.

As a Caa1/CCC/B- rated issuer, Piraeus is the weakest rated bank credit to raise senior debt, and its presence in the public market is a watershed moment for the country's financial institutions, which have been absent from the market for so long that they have no bonds outstanding.

This meant that lead managers - BNP Paribas, Credit Suisse, Deutsche Bank, Goldman Sachs and HSBC - had to look to Greece's closest country peer Portugal and its banks for guidance on pricing.

"The Greek sovereign has no outstanding short-dated debt, so we had to look at nine and 10-year bonds from the country and calculate the difference versus Portugal," said a banker.

Three-year senior unsecured bonds from Portuguese national champion banks like Caixa Geral and BES were quoted at around mid-swaps plus 200bp. Factoring in a 250bp difference between Greek and Portuguse sovereign bonds, bankers felt confident they were offering investors fair value at mid-swaps plus 450bp.

This suggests that investors are receiving around 15bp of premium at the tight end of guidance and 40bp at the wide end.

The Greek lender has been preparing the ground for this trade for the past week, having met over 100 investors.

However, Greek banks still have a big capital hole to fill. The Greek central bank said two weeks ago that the country's major banks would need 6.4bn of capital, although Piraeus is only a small chunk of that at 425m, versus the 2.18bn needed by National Bank and the 2.945bn needed by Eurobank

Piraeus last visited the euro senior unsecured market back in September 2009, when it priced a 500m September 2012 issue with a 4% coupon. It was rated A2/BBB+/A- at the time. (Reporting by Aimee Donnellan; editing by Sudip Roy, Alex Chambers)

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