UPDATE 1-NBG senior bond to smash through Greece's sovereign floor

Thu Apr 24, 2014 7:19am EDT

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By Aimee Donnellan

LONDON, April 24 (IFR) - National Bank of Greece, rated Caa1/CCC/CCC, is set to break through the traditional sovereign/bank pricing barrier on Thursday as it gears up to issue a 750m five-year senior bond at a lower yield than Greek government debt.

The bond will offer a 4.5% yield at pricing, some 32bp lower than the Greek sovereign's 3bn five-year deal which is bid at 4.82% on Thursday, having priced at 4.95% in mid April.

"Everyone was really interested to see just how far this trade would be able to price through the sovereign," said a syndicate banker.

"Investors are really keen on getting exposure to Greece which they are confident is on the road to recovery. This has enabled NBG to achieve such tight pricing."

Banks typically price unsecured debt at a concession to the underlying sovereign due to the perceived safety of government paper. For example, the large French banks trade around 50bp over their sovereign at the five-year point of the curve. But Greece defaulted on its debts just two years ago. On Wednesday, traders said investors were selling Greek government paper to make room for today's sale.

Greek 10-year yields rose 12bp to hit an intraday high of 6.12%, while all other peripheral sovereign bonds rallied. The yield on the new five-year bond also edged higher, rising 3bp.

"If as an investor you want Greek exposure you may have initially bought Greek government bonds but then decided that given what happened in the PSI you would rather hold bank senior debt as that was not haircut then, and Greece clearly still has a debt sustainability problem," said Michael Michaelides, rates analyst at RBS.

"The fact that Greek banks have raised private capital and are recapitalising themselves are both reasons Greek banks should trade through the sovereign." However, bankers involved in the deal questioned whether a significant number of investors were really switching out of the sovereign in favour of NBG's bond. "Greek sovereign debt has been trading up in recent sessions so I don't think it really adds up that accounts are selling off in order to get bank exposure," said another syndicate banker. NBG's 2.25bn-plus order book is far smaller than recent offerings from other peripheral issuers such as Generali, and suggests that the appeal of the bond is somewhat limited.

This could be due to the Caa1/CCC/ B- rating and the fact that it is pricing through a theoretical five-year Piraeus bond as well as the sovereign. Piraeus Bank, like NBG rated Caa1/CCC/B-, last month sold the first senior unsecured bond from the country since 2009, but kept to the relative safety of the three-year part of the curve.

The EUR500m issue attracted over EUR3bn of demand and came at a yield of 5.125%. It is now bid at 3.537%, according to Tradeweb on Thursday.

(Reporting by Aimee Donnellan, additional reporting by John Geddie, Editing by Alex Chambers and Julian Baker)

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