PZU SA, Poland’s biggest insurer, is selling 500 million euros ($681 million) of five-year bonds to help finance an acquisition.

The state-controlled insurer is tapping the market after the European Central Bank cut its deposit rate below zero to fight the risk of deflation, pushing investors to seek higher- yielding assets. Warsaw-based PZU is selling debt to help fund its purchase of RSA Insurance Group Plc’s units in the region, the biggest foreign acquisition by a Polish financial company.

PZU is offering debut benchmark notes at a spread of 85-90 basis points above midswaps, according to a person familiar with the transaction who asked not to be identified because the information is private. That would be the lowest rate for a similar-maturity bond from an east European company since Czech power producer CEZ AS issued debt with a 63 basis-point spread in October 2007.

“It’s definitely an attractive spread for PZU, European investors and local funds,” Olaf Pietrzak, head of debt investment at Warsaw-based Skarbiec TFI SA, which has 14.7 billion zloty ($4.8 billion) under management, said by e-mail today. Another positive factor is that PZU offers “a semi- sovereign debt that can be easily repaid,” he said.

PZU’s long-term local currency rating is set at A by Standard & Poor’s, five steps above junk, on par with the sovereign. PKO Bank Polski SA, the nation’s largest lender, sold 500 million euros of five-year debt in January at 115 basis points above midswaps while PGE SA, Poland’s biggest power utility, raised the same amount through a sale of five-year securities earlier this month at 98 basis points above mid- swaps.

“It’s a good decision to come to the market now because there is a lot of money after the ECB easing,” Marcin Grotek, who manages the equivalent of $360 million of debt at Warsaw- based MWealth Management SA, said by e-mail today. “As for the spread I don’t see a premium for a debut bond sale.”

Bank of America Merrill Lynch, Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and UBS AG were hired to manage PZU’s offering.

–With assistance from Maciej Martewicz in Warsaw.