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14/12/2016

Polish Capital Market opens-up to international with PKO Bank Hipoteczny

It is the first time that a Polish institution has offered a benchmark covered bond issuance on foreign markets. The euro covered bonds transaction of PKO Bank Hipoteczny opens a new segment of Polish capital market to international investors and provides local mortgage banks with a new source of long-term funding, enabling them to offer safer products to their customers.

PKO Bank Hipoteczny is the mortgage subsidiary of the largest Polish bank, PKO Bank Polski. The international EUR 4bn covered bond programme, structured and arranged solely by Societe Generale, forms an integral part of the rationalization of the client's funding strategy, as PKO Bank Polski Group intends to become a regular covered bond issuer in the future, paving the way to other mortgage banks in Poland. "Consistently, we are diversifying funding sources of the PKO Bank Polski Group and we are extending their maturities", comments Jakub Papierski, Deputy CEO of PKO Bank Polski and the Chairman of the Supervisory Board of PKO Bank Hipoteczny. "This time, PKO Bank Hipoteczny entered the international market with euro-denominated covered bonds. This is the first ever international benchmark size issuance of covered bonds from Poland."

"We are proud to be the ones setting new standards in the Polish mortgage banking market".


In October, benefiting from amended Polish statutory covered bond framework, PKO Bank Hipoteczny issued its inaugural international EUR 500m long 5 yr covered bond with a margin of 18 basis points over mid swap curve. The transaction attracted a large number of institutional investors, gathering a high quality orderbook of EUR 1.5bn with around 90 accounts involved.

"In a historical low rates environment, PKO Bank Hipoteczny provided international asset managers and pension funds with a unique opportunity to diversify their portfolio into Polish risk while benefiting from a sound robust credit structure and a yield pickup over the sovereign curve" – says Cecile Camilli, Head of DCM CEEMEA at Societe Generale.

The success of this pioneer deal bodes well for this new segment of the Polish capital market. "This transaction is a proof of trust in PKO Bank Polski Group and a confirmation of the strengths of the Polish economy and its long-term stability", comments Jakub Papierski. "It is reflected well in its price that is just 3 bps over Polish sovereign debt costs".

PKO Bank Hipoteczny's covered bonds received Aa3 rating from Moody's, which is the highest possible for the Polish issuer.

"Thanks to this issuance, PKO Bank Polski Group will get funding at a fixed interest rate for a period of nearly 6 years. It is an important element to start offering residential mortgages with extended period of fixed interest rate", explains Rafał Kozłowski, CEO of PKO Bank Hipoteczny. "Such mortgages mitigate clients' risk of growing credit instalments triggered by the increase in interest rates. This is a dominant model of residential mortgages in many European countries".

Societe Generale played a leading role in this transaction. The role of Arranger, Global Coordinator and Structuring bank has been granted to Societe Generale thanks to the longstanding local and international relationship with PKO Bank Polski Group, a core client of Societe Generale CIB in Poland. "Thanks to the client's trust, we have been entrusted with the strategic role in this significant deal", says Krzysztof Walenczak, CCO of Societe Generale CIB in Poland.

"It is a landmark transaction for the whole capital market in Poland. With this transaction, PKO Bank Hipoteczny paves the way for other Polish mortgage banks to issue on international markets and opens a new segment on the Polish residential mortgage market".