LONDON, Sept 3 (IFR) - UniCredit has defied a softening Additional Tier 1 market on Wednesday and pulled the trigger on its planned contingent convertible (CoCo) bond, seeking to raise capital ahead of the European stress tests.
Italy’s largest bank by assets, Baa2/BBB/BBB+, is marketing the perpetual non-call seven-year issue at 6.75% area, with orders at 1.75bn, according to a source close to the deal.
“We thought 6.75% is a good point for us to start as it offers a good transaction for us and for investors,” said Waleed El Amir, head of strategic funding and portfolio at UniCredit.
“We will size our deal based on the demand in the order book.”
UniCredit’s deal will have a 5.125% Common Equity Tier 1 trigger, and will have a temporary write-down structure.
The borrower and leads Bank of America Merrill Lynch, Credit Agricole, Credit Suisse, Deutsche and UniCredit’s investment banking unit considered delaying the deal, expected to be rated BB- by Fitch, after spending the early part of the morning eyeing the poor performance of Santander’s 1.5bn perpetual non-call seven-year bond.
That issue dropped to a cash price of 99.1, having priced at par on Tuesday afternoon.
But as the Spanish bond recovered some of its early losses and rose to 99.5, the issuer decided to proceed with caution.
Santander, rated Baa2/BBB/BBB+, came under fire on Wednesday for jamming an oversized deal into a convalescing market. The EUR1.5bn 6.25% bond attracted just EUR3bn of orders - robust in outright terms, but still the smallest book for a CoCo since the market opened up for eurozone banks just a year ago.
“We decided to go ahead with the deal to try and avoid some of the congestion that is expected in the primary market this month. Other banks are expected to announce deals so it makes sense to get in as early as possible,” said El Amir.
Banks are looking to execute deals in September to boost their capital buffers and improve leverage ratios ahead of the tress tests.
HSBC is preparing to meet with investors this Thursday to discuss plans for its debut contingent convertible security, which will emerge in the dollar market in the coming weeks. Europe’s largest bank by assets is also rumoured to be looking at other currencies.
Elsewhere, Nordea, Sweden’s largest bank, looks set to launch the first Tier 1 Coco from the country, breaking the ice for a slew of Swedish capital deals.
The bank has mandated Bank of America Merrill Lynch, Citigroup, Goldman Sachs and UBS to lead manage a dollar-denominated transaction, according to market sources.
Sweden is one of the very last European jurisdictions to get the go-ahead to issue Additional Tier 1 debt. (Reporting by Aimee Donnellan; Editing by Alex Chambers and Julian Baker)