By Sarka Halas
UniCredit Bank Austria AG has resurrected its debut bond sale
after pulling the deal in October due to lack of investor demand,
but it will have to pay up to get the deal away.
Despite the sharp drop in borrowing costs that have enabled
banks from weaker euro-zone economies to gain access to the market
and sell debt more cheaply than before, UniCredit Bank Austria will
have to pay more this time than it had intended in October because
of its Italian parent UniCredit SpA (UCG.MI).
The bank is selling senior unsecured five-year debt for up to 13
basis points more than the potential pricing on its deal in
October, when it pulled the same bond because of lack of investor
demand.
Pricing on the new 500 million euro bond ($666 million) has
tightened to 163 basis points over the reference midswaps rate from
initial price recommendations of 170 to 175 basis points over the
midswaps rate. In October, the bank set pricing on the bond in the
area of 150 basis points over the midswaps rate.
The substantial price tightening on the new bond reflects decent
investor demand--book size is around EUR1.6 billion from over 190
accounts.
"The first time around they tried to price the bond closer to
other Austrian banks, such as Raiffeisen Bank International AG
(RBI.VI) and Erste Group Bank AG (EBS.VI). The current price is now
a closer reflection to the parent company," said a banker who is
working on Wednesday's deal and who worked on the deal postponed in
October.
UniCredit's five-year senior unsecured debt is currently trading
at 213 basis points over the midswaps rate. The Austrian division
is rated two notches above the Italian parent at A3 and A by
Moody's and S&P, respectively.
"The feedback we had last time around was that investors felt
they were still buying the Italian parent, even though the bank is
based in Austria, so they wanted spreads to reflect that" the
banker noted.
However, not all are convinced that the Italian connection could
be the only concern for investors. Marc Ostwald, fixed-income
strategist at Monument Securities, said UniCredit Bank Austria's
circumstances are complicated due to its exposure to the Visegrad
Group--consisting of Poland, Czech Republic, Slovakia--and the
Balkan region, in addition to its ties to Italy. Both the Visegrad
group and the Balkan region are comprised of countries with diverse
credit ratings, economies, and growth prospects.
"They [UniCredit Bank Austria] were (lending) in the region long
before the Iron Curtain came down. Its always been on their
doorstep," said Mr. Ostwald.
But even as the bank is able to sell debt--albeit at a higher
price than it intended last year--and investors are buying it for
the yield, there are other investment opportunities in the bond
market and investors can be picky.
"Why isn't it pricing at 160 basis points (as opposed to 163
basis points)? If it drops like a bomb on the secondary market,
that's the last thing you want at the moment. They still need to
place it properly," said Mr. Ostwald.
--Ben Edwards contributed to this report
Write to Sarka Halas at sarka.halasova@dowjones.com
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