Strong investor demand and a rally in Greek government bonds enabled Piraeus Bank to significantly reduce its borrowing cost with a new Tier 2 bond on Wednesday, according to two sources involved in the deal.
Piraeus, Greece’s largest lender by assets, priced its new 500-million-euro ($545.1 million) 10-year bond at a yield of 5.5 percent, almost half what it paid in June for a 5-year Tier 2 note.
Initial price guidance for the new issue was around 6 percent. Offers topped 4.0 billion euros with more than 350 investors taking part, one of the sources told Reuters.
Earlier on Wednesday, Greece’s 10-year government bond yield fell below 1 percent for the first time ever, buoyed by an improving economy and credit ratings upgrades.
“The reduction of the risk for the country facilitated the Tier 2 issues by Greek banks,” said Kostas Boukas, asset management director at Beta Securities.
Greek banks have been working to reduce more than 70 billion euros in soured loans, the legacy of a financial crisis that shrank the country’s economy by a quarter.
Piraeus is the second Greek bank to come out with a Tier 2 note this month. Last week, Alpha Bank, Greece’s fourth-biggest lender, raised 500 million euros via a Tier 2 bond at 4.25 percent.
The bank is planning to securitise roughly 7 billion euros of non-performing exposures (NPEs) this year and aiming to cut its NPE ratio to a single digit by 2023, from 49 percent last year.
Greek governments bonds has been one of the euro zone bond market’s top performers this year, with the 10-year yield down nearly 40 basis points so far.
“Investors are expecting an expansion of activities and bank profits in Greece due to a fast-improving economy,” Boukas said.
Piraeus sold a 400-million-euro Tier 2 bond last June at a yield of 9.75 percent. National Bank of Greece followed in July, selling a 400-million-euro Tier 2 bond at 8.25 percent.