The 5-year covered bonds are to be listed on the Irish Stock Exchange in Dublin. The inaugural issue was based on Estonian assets only, though Luminor said it is planning to continue issuing Covered Bonds adding the Lithuanian and Latvian assets to the cover pool.
Luminor CEO Erkki Raasuke said that with this inaugural issuance of covered bonds Luminor had established a milestone in the development of the Baltic financial markets.
"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.
During the last week of February and the 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," the bank said.
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.
Covered bonds are debt securities issued by financial institutions, underpinned by a separate group of assets so that in theory even if the financial institution goes bust, the bond is covered.