In a year when Asia’s local currency markets came into their own, the Singapore-dollar bond market stood out for its depth and sophistication. For branching out into high-yield instruments, extending maturities and bringing rare credits to market, DBS Bank is IFR Asia’s Singapore Bond House of the Year.
DBS Bank, as Singapore’s largest banking group, has long topped the league tables in its home market. In the year under review, the bank needed to respond to changing market conditions and tougher competition, but again dominated with an enviable market share, arranging almost half of the deals done.
In a region where local currency bond markets are developing fast, the Singapore bond market has stayed ahead of the pack thanks to three key developments – the boom in perpetual bonds, the growing importance of private wealth, and the entrance of new foreign issuers. DBS was on top of all these trends.
DBS led this year’s charge into corporate perpetuals, having already tested the waters in 2011.
After kicking off the year’s first perpetual issue in January with Global Logistics Properties’ S$250m retap of its 5.5% issue, DBS never looked back. It took part in 10 more perpetual issues, clearly establishing its dominance in the space.
The new wave of hybrids suited a private bank investor base that had grown increasingly hungry for fixed-income products. With an influx of foreign money keeping base rates near historic lows, many were willing to accept extra duration risk in return for an attractive yield.
While perpetuals are generally targeted at high-yield investors, DBS used its unmatched distribution skills to find takers among real-money funds, as well as the more usual retail and private bank bids.
For example, Singapore Post’s senior perpetual, which DBS sole led, pulled in 40% from institutional investors, with private banks taking the rest. Since then, real-money accounts have been weighing in, at least for higher-grade credits’ undated securities.
“We are creating new instruments and we are selling to a wider group of people,” said Clifford Lee, managing director and head of fixed-income treasury and markets at DBS. “More sophisticated investors are seeing more opportunities here, and they will come in. We are increasing deal sizes and tenors, and making them accessible to offshore issuers.”
DBS was often the first bank approached when foreign issuers looked to access the low yields available in the Singapore market.
It played an important role in distributing the first Singapore-dollar bonds for Indian borrowers, starting with IDBI Bank’s debut issue in August.
Even when other banks originated deals through their global networks, DBS’s local reach proved essential to placing the risk. Lee said there were often deals that could not be done in the Singapore context, and that DBS had often tweaked the structures to make them work.
“There are indeed deals that other banks bring in, but the truth is they can’t do Singapore-dollar deals on their own. They always pick DBS among the three local banks, because we have the distribution and execution skills. Issuers want us on the deals because they know they can trust us to do them,” he said.
DBS was also quick to realise that investors were becoming more willing to accept long tenors in a bid to get better returns. In addition to providing longer tenors via the perpetual route, the bank arranged some quality bespoke deals such as the rare 20-year bond it sole-led for SP PowerAssets, Singapore’s leading energy company.
The Aa3/AA– rated borrower tapped the Singapore dollar bond market on September 10, less than a week after borrowing in the G3 market, with a S$250m (US$203.4m) issue at 3.40%. The bond extended the issuer’s yield curve following its US dollar 10-year deal.
The record volume of deals in the Singapore bond market helped DBS book a 30% increase in fee revenues. Despite the competition for mandates and more competition from foreign banks, fees in the Singapore bond market have surprisingly not dropped.
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