Luminor issues €500 million worth of covered bonds with negative interest

Luminor headquarters in Tallinn.
Luminor headquarters in Tallinn. Source: Rene Suurkaev/ERR

Luminor issued covered bonds with record low — negative — interest in the amount of €500 million on Wednesday. The five-year covered bonds are to be listed on the Irish Stock Exchange.

Investor interest was very strong, the bank said, reporting covered bond orders in excess of €1.6 billion.

Luminor issued €500 million of covered bonds at a spread over mid-swap of 25 basis points (bps). Considering the euro's current extraordinarily low interest rates, the final yield of the inaugural issue stood at -0.18 percent. This represents a record low interest rate paid by a Baltic non-government issuer.

Nearly all orders originated from institutional investors outside of the Baltics. Orders from central banks and supranational investors accounted for 20 percent and orders from German institutional investors 43 percent of the total. Orders originated from a total of nearly 80 investors from 18 different countries across Europe.

Luminor CEO Erkki Raasuke said that broad investor interest in generally challenging markets demonstrates significant trust in the Baltic economies, the newly established covered bond framework as well as in Luminor.

"It also reflects the soundness of the local housing market," he continued. "This is the first time that a Baltic company can borrow in size with negative interest rates."

According to Raasuke, Luminor has reached a growth stage in its transformation. "We plan to be a lot more active on the market, especially when it comes to home financing," he said. "This issuance gives us access to very competitive funding, which will most of all benefit our customers."

Luminor inteds to continue issuing covered bonds, adding its Lithuanian and Latvian assets to the cover pool. The inaugural issue is based on Estonian assets.

Legislation enabling the issuance of covered bonds entered into force in Estonia in March 2019.

On January 13, international rating agency Moody's assigned Luminor a provisional (P) Aa1 rating for mortgage covered bonds, which is currently the highest credit rating in the Baltics.

Luminor is the third-largest financial services provider in the Baltics, which as of the end of 2019 has 16.6 percent of the market share in deposits and 18.7 percent in lending.


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Editor: Aili Vahtla

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