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By Sarka Halas
LONDON, July 8 (IFR) - Iceland saw solid investor interest for its first euro-denominated bond issue since 2006, taking another step on its recovery path.
Books were in excess of 2.1bn for the 750m July 2020 deal, which launched at 175bp over mid-swaps.
That spread was the tight end of guidance, which was announced earlier on Tuesday at mid-swaps plus 180bp area, plus or minus 5bp. Initial price thoughts of 190bp area were released on Monday afternoon.
Iceland has only tapped the US dollar market since the collapse of its banking sector in 2008, and the euro bond marks a shift away from the dollar funding it has traditionally relied on.
“There is an evolution of the investor base for Iceland; now we are likely to see investors who trust the trade and the country,” said a banker away from the deal.
“They are now rated investment grade, so they are less relevant for emerging market investors,” he said, pointing out that when Iceland came back to the dollar market, that paper was bought by high yield and emerging market accounts.
When asked if he was participating in the trade, one investor in the EM space said he would have “maybe four years ago, but there is not much of a yield now”.
Iceland was last in the public market with a heavily oversubscribed 10-year dollar bond in May 2012. The previous year, it returned to the capital markets with a five-year issue in the currency.
The odd six-year maturity will be used to service a large redemption in the form of Nordic loans that the sovereign took out at the height of the crisis.
Leads looked to emerging Europe for comparables, with one picking out Slovenia and Croatia as relevant markers.
Iceland is coming around or inside where similarly rated peers were trading when the bond was announced Monday. Tradeweb showed Baa3/BBB-BBB- rated Romania’s November 2019s bid at 158bp over mid-swaps, while Baa1/BBB-/BBB- rated Russia 2020s were bid at 190bp over.
Iceland itself is rated Baa3/BBB-/BBB, all stable. Fitch was the last rating agency to review the sovereign in February, citing a high level of income per capita and governance and human development on a par with other highly rated sovereigns.
Iceland’s growth is also slated to pick up. GDP was estimated at 2.1% in 2013, while Fitch expects growth will inch up to 2.6% over the next two years.
Barclays, Citigroup, Deutsche Bank and JP Morgan are joint lead managers for the Reg S issue. (Reporting by Sarka Halas, editing by Philip Wright, Julian Baker)