PKO Bank Hipoteczny Completes First Benchmark Sale of Covered Bonds

• PKO Bank Hipoteczny offered Poland’s first mortgage covered bonds secured solely by high-quality złoty-denominated residential mortgages.
• During the book-building process, investors subscribed for a total of PLN 1.24 billion of the securities.
• The PLN 500 million of bonds are expected to begin trading on 11 May.

On 27 April 2016, PKO Bank Hipoteczny carried out its first benchmark issue of covered bonds. Institutional investors bought PLN 500 million of the securities.

“Issues of covered bonds help increase the stability of Poland’s financial system,” said Zbigniew Jagiełło, president of PKO Bank Polski, the parent of PKO Bank Hipoteczny. “Using covered bonds to finance mortgage loans eliminates some of the structural maturity mismatch between assets and liabilities. Over the long term, these operations will support the country’s economic development, and will also become an important part of the PKO Bank Polski Group’s financing.”

Pioneering issue of covered bonds

PKO Bank Hipoteczny issued a total of PLN 500 million of covered bonds, with a maturity of five years and 1 day, paying interest of 3-month WIBOR plus 65 basis points.

“This is Poland’s first benchmark issue of covered bonds secured solely by złoty-denominated residential mortgages for individual borrowers,” said Rafał Kozłowski, president of PKO Bank Hipoteczny. “This is also Poland’s first benchmark issue of covered bonds on the basis of the updated law on covered bonds and mortgage banks. Thanks to the high quality of the receivables in the cover pool and the new regulations, PKO Bank Hipoteczny’s covered bonds have the highest credit rating possible for Polish securities. Our bonds are a fantastic addition to investors’ portfolios of treasury securities.

High investor demand

During the book-building process, 37 investors including the European Bank for Reconstruction and Development subscribed to buy a total of PLN 1.24 billion of covered bonds from PKO Bank Hipoteczny, meaning the issue was almost 150% oversubscribed.

“PKO Bank Hipoteczny’s issue of covered bonds confirms the Polish market’s high ability to absorb safe, long-term securities,” Kozłowski added. “We’re confident that our periodic issues, combined with investors’ active approach, will help build the right scale and liquidity for the Polish covered bond market.”

Table: Purchasers of PKO Bank Hipoteczny’s first benchmark issue of covered bonds

The bonds will be traded on the Warsaw Stock Exchange’s parallel market and the regulated off-exchange market Bondspot. PKO Bank Hipoteczny expects them to begin trading on 11 May 2016.

Aa3 Rating

PKO Bank Hipoteczny’s first benchmark issue of covered bonds was carried out as part of its Covered Bond Issuance Programme, on the basis of the Base Prospectus approved by the Financial Supervision Authority on 12 November 2015. Mortgage covered bonds are a type of debt paper secured by payments on mortgage loans, and constitute one of the world’s safest financial instruments. The high level of safety of PKO Bank Hipoteczny’s covered bonds has been confirmed by the ratings agency Moody’s, which in December 2015 gave them an Aa3 rating, the highest possible level for Polish securities (the Country Ceiling level).

PKO Bank Hipoteczny is 100% owned by PKO Bank Polski, Poland’s largest bank, and specialises in złoty-denominated housing loans. PKO Bank Hipoteczny’s main purpose is to secure long-term financing by issuing covered bonds. In August 2014, PKO Bank Polski received approval from Poland’s Financial Supervision Authority to set up a mortgage bank, which began operating in April 2015.

On 11 December 2015 PKO Bank Hipoteczny held its pilot issue of 5-year covered bonds, with a value of PLN 30 million, paying interest of 3-month WIBOR plus 75 basis points.