September 18, 2017 / 12:55 PM / 10 months ago

NBG close to mandating short-dated euro covered

LONDON, Sept 18 (IFR) - National Bank of Greece (NBG) is close to mandating a €300m to €500m three-year covered bond, according to sources familiar with the matter, which would be the first Greek bank bond sold since 2014.

The market has been on the lookout for Greek bank issuance ever since the sovereign sold its first euro benchmark in three years, a €3bn 4.375% Aug 2022 at a 4.625% yield, in late July.

The country’s banking sector is desperate to wean itself off the costly emergency liquidity assistance (ELA) on which it has been dependent since 2015.

A covered bond transaction - the safest and cheapest form of bank debt - would be a natural route for an issuer to regain market access and help normalise its funding profile.

The format would give bondholders additional comfort, particularly after they were asked to swap their senior and subordinated debt into equity to help plug a combined €14.4bn capital hole across the four largest banks in 2015 as they crumbled under an exodus of deposits and a spike in bad loans.

NBG confirmed to IFR on Monday that it was contemplating a covered bond issue, but that it had not yet mandated banks.

The bank listed a “return to modest primary capital markets activity” among its strategic objectives in a corporate update earlier this year. It is on track to eliminate its ELA funding in the short term, having reduced its exposure to €2.6bn from a high of €17.6bn in the second quarter of 2015.

“Execution of remaining capital actions and other initiatives, expected during the next few months, will permit NBG to disengage fully from ELA,” it noted in a recent presentation.


A deal, should it emerge, would be the lowest rated in the European covered bond universe.

Michael Spies, a Citigroup covered bond analyst, predicted in a note earlier this month that a five-year Greek covered would price at yield levels of around 3.75%, roughly 160bp above the highest-yielding Turkish covered. That would be inside the 4.4% yield at which Greece’s Aug 2022 was quoted on Monday, according to Tradeweb.

While yielding considerably higher than other peripheral paper - Banco di Desio recently sold a better rated €500m 0.875% seven-year (AA- by Fitch) at a 0.974% yield - the bonds are expected to appeal to investors beyond the typical buyer base for that product.

Bankers told IFR in July that interest in Greek bank paper was largely concentrated among hedge funds, but added that sentiment towards the sector was improving.

Sub-investment-grade ratings usually rule covered bonds out of the European Central Bank’s purchase programme (CBPP3), though an exception to those rules mean NBG’s programmes are seen as eligible (subject to a 30% eurosystem limit for any one bond).

“This is obviously a strong support, particularly for a successful placing of a transaction in the primary market,” said Spies.

The bank also received a boost in August when Fitch upgraded its covered bond programmes (alongside those of Alpha Bank and Piraeus Bank) to Single B from Single B-, following its upgrade of the sovereign and country ceiling. The sovereign is rated Caa2/B-/B-.

Commerzbank analysts noted last month that a fourth-quarter covered bond transaction would tally well with NBG’s maturity profile, which includes a €1.5bn one-year retained covered bond floater maturing in early October. (Reporting by Alice Gledhill, editing by Helene Durand and Sudip Roy)

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