Hypo Alpe-Adria-Bank International AG said it expects to price its planned 1 billion-euro ($1.3 billion), 10-year Tier 2 bond similar to securities of Austria’s state railway and road operators.
The bank’s notes will have a guarantee from the Austrian government, which will take over interest payments or redemptions immediately when they are missed by Hypo Alpe, said Chief Financial Officer Johannes Proksch. While Austrian 10-year bonds yield 1.845 percent, the bank bonds will probably yield more than 2 percent, he said.
“We can approach a group of investors” that wouldn’t normally buy Hypo Alpe bonds, “because what they get is Republic of Austria,” Proksch said. Other banks’ Tier 2 bonds aren’t comparable with the one sold by Hypo Alpe because of the state guarantee, for which the bank will pay a fee, he said. “This instrument is a novelty.”
The nationalized bank is selling the bond to help fill a 1.5 billion-euro capital gap determined by Austrian regulators. The state will also inject 500 million euros in cash into the the Klagenfurt-based bank this year. The measures still need the European Union’s approval as state aid.
Austria’s banking regulator Finanzmarktaufsicht, or FMA, told Hypo Alpe to raise its total capital ratio, a measure that includes supplementary capital, subordinated bonds and other capital forms that don’t qualify as core capital, to 12.7 percent. The ratio was 9.5 percent at the end of June.
Austria’s state railway Oesterreichische Bundesbahnen also sells debt with a state guarantee. Its bond due June 2022 yields about 11 basis points more than the Austrian government note due November 2022. Road operator Autobahnen-Und Schnellstrassen-Finanzierungs AG’s bond due September 2025 yields about 48 basis points more. Hypo Alpe said it expects the notes to be ranked similar to Austria, which is rated AAA by Moody’s and Fitch, and AA+ by Standard & Poor’s.
Hypo Alpe is meeting investors from Nov. 26 in Cologne, Frankfurt, Munich, Vienna and London. It has mandated Citigroup Inc., Commerzbank AG, Deutsche Bank AG and Morgan Stanley.