When and how will the cash used for redemption be sourced, and does it imply any liquidity strain or upcoming asset sales?

Cash source and timing

The early‑redemption can be executed only after 30 Sept 2025 and, after the ECB granted its consent on 11 Aug 2025, the record‑date and payment‑date will be set by LHV in line with the bond prospectus – typically a few weeks after the notice is issued. The redemption payment will be made from LHV’s liquid capital, most likely drawn from retained earnings or the Tier‑2 capital buffer that the group has already built up to meet regulatory requirements. Because the amount represents a relatively modest share of the group’s total Tier‑2 liabilities, LHV does not need to raise external funding or liquidate significant assets to meet the cash outflow.

Liquidity and asset‑sale implications

LHV’s announcement does not signal a liquidity strain. The redemption is a scheduled, consented exercise of a contractual right, not a forced payout driven by cash‑shortness. The group has a history of maintaining robust capital ratios, and the early‑redemption actually reduces its regulatory capital charge rather than expanding it. Consequently, there is no expectation of large‑scale asset disposals or a need to tap the market for short‑term funding. The cash outflow is covered by internal resources, and the balance sheet impact will be a modest decline in Tier‑2 liabilities with a corresponding reduction in cash – a routine capital‑management move.

Trading implications

* Bond price drift: As the redemption date approaches, the bond will trade at a premium to its 10‑yr yield to reflect the expectation of a cash‑pay‑out. Once the record‑date is announced, holders will start pricing in the imminent payout; a short‑run price uplift is typical.

* Positioning: If you hold the LHV Tier‑2 subordinated bonds, consider selling before the record‑date to lock in the uplift and avoid being forced to roll over a now‑redeemed exposure. Conversely, a short‑term long can be justified if you anticipate a “buy‑the‑dip” after the bond is redeemed and the premium disappears.

* Credit spread: The redemption improves LHV’s balance‑sheet risk profile, likely tightening its credit spreads on other issued debt. Monitor the impact on LHV’s senior Euro‑bonds and the broader Estonian banking sector – a modest spread narrowing could present a relative‑value entry point.

In short, the cash for the redemption will be sourced from LHV’s existing liquid capital, the move is routine capital management, and it does not foreshadow liquidity stress or forced asset sales. Traders can focus on the short‑run price dynamics around the record‑date and the downstream credit‑spread tightening for related LHV securities.