UPDATE 1-Austria sets guidance on two-part euro bond

Wed May 28, 2014 6:34am EDT

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By Sarka Halas

LONDON, May 28 (IFR) - The Republic of Austria has opened books on its first syndicated benchmark issue of 2014, a dual-tranche deal that includes the sovereign's debut floating rate note.

The issuer began marketing the 10-year fixed and six-year FRN via lead managers Barclays, Commerzbank, Goldman Sachs, HSBC and UniCredit, with demand at the last update having reached a combined 5bn.

FRNs issued by sovereigns are rare. Italy is the only regular borrower in the format, placing deals via auction, while Belgium sold a five-year syndication in April 2013.

"FRNs are products marketed more to US-based investors; they are quite rare in euros and are generally issued in the two- to three-year maturity," said a co-lead, adding that this bond may have been based on reverse-enquiry interest.

Another syndicate official said that cash-rich official institutions and bank treasuries could be interested in the format, although one banker said FRNs in the five- to seven-year maturity were not very supra or central-bank friendly.

Guidance on the Reg S June 2020 floater has been set at 2bp area below six-month Euribor, tighter that initial price thoughts of flat to 1bp below.

A co-lead spotted Austria's July 2020 fixed rate deal at mid-swaps minus 6bp, which suggests around 4bp of new issue premium at the revised guidance level.

Meanwhile indications of interest on the RegS/144A 10-year bond have reached over 3bn. That figures includes primary dealer orders.

Guidance on the RegS/144a October 2024 benchmark is 13bp area over mid-swaps, following initial price thoughts of low to mid teens announced earlier Wednesday.

Leads looked to the interpolated Austrian government curve for comparables. Austria has an October 2023 bond spotted at 7.5bp over mid-swaps, while a March 2026 deal was seen at around 16bp over.

One lead manager estimated fair value at 11bp to 12bp over swaps.

"The 10-year bond is good value, so the sale should go well," said a co-lead.

The sovereign is rated Aaa/AA+/AAA/AAA, all stable. (Reporting by Sarka Halas, Editing by Helene Durand, Julian Baker)

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