Luminor issues EUR 500 million inaugural covered bonds

  • 2020-03-09
  • TBT Staff

On March 4, Luminor issued the first covered bonds from the Baltic region, in the size of EUR 500 million. The 5-year covered bonds are to be listed on the Irish Stock Exchange.

Luminor CEO Erkki Raasuke said that with this inaugural issuance of covered bonds Luminor has established an important milestone in the development of the Baltic financial markets and taken another important step towards building Luminor as a strong Pan-Baltic bank for local companies and households.

„Wide investor interest in generally challenging markets shows most of all trust towards the Baltic economies, the newly established covered bond framework and Luminor, and reflects soundness of the local housing market. It is the first time when a Baltic company can borrow in size with negative interest rates,” Raasuke said.

“Luminor has reached a growth stage in our transformation and we plan to be a lot more active in the market, especially when it comes to home financing. This issuance gives us access to a very competitive funding, which will most of all benefit our customers.”

During the last week of February and beginning of March Luminor met with close to 70 investors across Europe, covering Continental Europe, Scandinavia, UK and the Baltics. On the back of those meetings, Luminor Bank AS announced a transaction on March 4.

Investor appetite was very strong, generating orders in excess of EUR 1.6 billion.  Luminor issued EUR500m of covered bonds at a spread over mid swap of 25 bps. Considering the current extraordinarily low euro interest rates, the final yield ended up at -0.18%, which represents the record low rate paid by a Baltic non-government issuer. Almost all of the orders originated from institutional investors outside of the Baltics. Orders from central banks and supranational investors formed 20% and orders from German institutional investors 43% of the total. The orders were originated from close to 80 investors across Europe from 18 different countries.

Luminor is planning to continue issuing Covered Bonds adding the Lithuanian and Latvian assets to the cover pool. Inaugural issue is based on Estonian assets.

The legislation enabling the issuance of covered bonds under the Estonian Covered Bonds Act entered into force in Estonia in March 2019.

On 19 December 2019, the European Central Bank issued a licence to Luminor to issue covered bonds following the assessment of the Estonian Financial Supervision Authority. Luminor is the first bank in the Baltic countries to receive such a license.

On 13 January 2020, Moody’s assigned Luminor a provisional (P) Aa1 rating for Mortgage Covered Bonds, which is currently the highest credit rating in the Baltic countries.

Luminor is the third-largest provider of financial services in the Baltics, with 940,000 clients, 2,500 employees, and market shares of 16.6% in deposits and 18.7% in lending as of the end of the year of 2019. Total shareholders’ equity amounts to EUR 1.6 billion, and Luminor is capitalised with a CET1 ratio of 19.7 %.