KBC launches Group-level Tier 2

Belgium’s KBC launched one of the more successful bank Tier 2 issues of November, a Eu750m 10 year non-call five deal on 18 November that attracted a Eu2bn book in spite of deteriorating market conditions.

Leads DZ, Goldman Sachs, JP Morgan, KBC and Natixis went out with initial price thoughts of the mid-swaps plus 210bp area and on the back of Eu1.8bn of interest tightened guidance to 200bp-205bp over. The paper was ultimately re-offered at 198bp over mid-swaps with the final order book above Eu2bn.

Bankers suggested that reasonable IPTs and issue size had contributed to a solid outcome for the transaction. Dirk Van Damme, head of capital markets, bond issues, at KBC, attributed the deal’s success to several factors.

“First of all this was our first public syndicated benchmark issue in subordinated Tier 2 format at the level of KBC Group,” he said. “Secondly, the credit spread and particularly the credit spread performance reflects the underlying credit quality of KBC Group.

“And then thirdly I must say that we met with tremendous demand, from large institutional investors from different areas across Europe. And thereafter some investors who missed the initial subscription period expressed interest in buying some paper.”

However, an investor noted that with TLAC considerations fresh in investors’ minds, issuing out of the holding company may not have been a positive factor, and that the deal traded down in the aftermarket as the market weakened.

UK and Irish accounts were allocated 25% of the transaction, France 20%, the Benelux 19%, southern Europe 13%, Germany 10%, Switzerland 9%, and others 4%. Fund managers took 75%, insurance companies 13%, banks 7%, central banks 3%, hedge funds 1%, and others 1%.