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UPDATE 1-Banks hired for inaugural German Federal-regional bond
June 18, 2013 / 2:38 PM / 4 years ago

UPDATE 1-Banks hired for inaugural German Federal-regional bond

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By John Geddie

LONDON, June 18 (IFR) - Five banks have been hired on Tuesday to manage the first ever joint bond issue between the German Federal Republic and its regions, with the deal expected to come to market as early as next week.

The Bund-Laender-Anleihe bond, or so-called Deutschland-Bond, has been mandated to Barclays, Commerzbank, Deutsche Bank, DZ Bank, and HSBC, said one of the lead banks on Tuesday.

It is not yet clear how many of the 16 regions will participate in the deal, although at least six have expressed reservations or ruled themselves out so far - Baden-Wuerttemberg, Bavaria, Hesse, Lower Saxony, Saxony and Thuringia.

“[The participating regions are] not public yet. There will be a press presentation in Frankfurt tomorrow arranged by the debt agency,” said one of the lead managers.

Berlin agreed to the Bund-Laender-Anleihe initiative last year in a deal to get the support of the regions in the Bundesrat upper house of parliament for the eurozone’s new fiscal pact.

While the federal government has seen its borrowing costs fall to record lows during the eurozone crisis as Germany has been seen as a safe haven, several of the regions pay much higher rates, reflecting their high levels of indebtedness or economic problems.

Regions normally borrow individually in capital markets, or in conjunction with other regions through ‘joint-Laender’ bonds.

The Federal Republic agreed to involve itself in a joint bond issue, but stopped short of offering the federal guarantee that some regions had hoped for.

The initiative is hoped to encourage reluctant international investors to buy regional bonds, and increase the size and liquidity of these deals.

Recent joint-Laender bonds have tended to be around EUR1bn in size, with around 90% sold to domestic investors.

Sources close to the discussions over the Bund-Laender-Anleihe bond suggest that the debut deal will be EUR3-5bn in size, in the five- to seven-year maturity.

The finance ministry has already marketed the bonds extensively in Europe - with meetings confirmed to have taken place in Amsterdam, London and Switzerland - although some investors and strategists have been critical of the plans.

Further investor work is planned for the coming days, said one lead manager.

Syndicate officials said the debut bond is expected to come to market next week, although the finance ministry has given no clear indication of timing.

The bond will be denominated in euros and is expected to carry an AAA rating from Fitch, said banks on the deal. (Reporting by John Geddie, editing by Julian Baker)

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