Deal-Thirsty Polish Bond Market Set for Blow by Record Bank Loan

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Banks with more cash than opportunities to lend are crowding out bond investors in Poland by offering their longest-maturity loans.

Tauron Polska Energia SA, the biggest issuer of bonds last year, is discussing a 15-year loan for about 1 billion zloty ($278 million) with banks at an annual rate between 100 and 200 basis points over the Warsaw interbank offered rate, Chief Financial Officer Krzysztof Zawadzki said last week. That’s the longest maturity for equivalent zloty loans tracked by Bloomberg and compares with a 90 basis-point spread Tauron paid for five-year zloty notes in November.

“It would basically be a knock-out for the bond market, if any company was able to get such a loan from commercial banks,” Marcin Pulit, the head of credit markets at Bank Pekao SA, the second-largest Polish lender, said by phone on Monday.

Tauron’s plans show how banks in the European Union’s biggest eastern economy are flush with cash because of a surge in savings. While that’s helping companies cut borrowing costs, it’s crimping Poland’s bond market. Corporate lending increased in the first four months of this year, compared with a 28 percent drop in domestic bond sales, according to data from the central bank and Fitch Ratings.

The Katowice-based utility is seeking long-term financing as it plans to spend 29 billion zloty from 2014 to 2020 to renew aging power generators, according to the company’s strategy statement last year. Last year, it sold 1.75 billion zloty of notes due 2019, the biggest offering by a Polish company for the year, data compiled by Bloomberg show.

Money Oversupply

“Banks are willing to lend for a longer period thanks to the oversupply of money on the market,” Tauron’s Zawadzki told reporters in Warsaw on May 14. “They want to fix their margins for a longer period.”

Polish banks’ Tier-1 capital-adequacy ratio, a measure of financial strength, was 14 percent at the end of 2014, exceeding the 9 percent required by the Polish Financial Security Authority, the regulator said on its website.

Grupa Azoty SA, Poland’s biggest chemical maker, is also looking at longer-term credit. It’s negotiating a 10-year facility from the European Bank for Reconstruction and Development after signing a five-year loan with Polish banks, the company said on April 23. PKN Orlen SA, the nation’s largest refiner, is seeking advisers for the private sale of a 20-year euro-denominated bond, three people familiar with plans said last month.

Rising Demand

“There is increasing demand for long credit among companies, as they are more and more optimistic about the economic perspective,” Wojciech Sobieraj, the chief executive officer at Alior Bank SA, said by phone on May 15.

Banks are cutting rates, lowering fees and increasing credit lines to attract clients, the central bank said in its latest survey of lenders published on May 6.

Competition among lenders, coupled with record-low interest rates at home and abroad, has seen borrowing costs decline. The average interest rate on new corporate loans dropped to 3.3 percent in March from 4.2 percent at start of 2014, the bank’s data show.

“The availability of long-term credit shows that the Polish market is developing and companies may choose what suits their investment needs better,” Pawel Borys, head of strategy at PKO Bank Polski SA, the largest Polish lender, said by phone on Monday. “It’s important to have alternative as the bond market isn’t yet ready for extended maturities.”

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