After a record 2012, Singapore’s debt capital markets specialists are keen to build on the city’s growing status as an international funding centre. A repeat of those record volumes, however, may be a step too far.
Even after a bumper year for Singapore dollar bonds, a backlog of mandates is keeping the primary market busy in the first quarter of 2013. While that heralds another rosy year for issuance in Singapore, market players do not expect volumes in 2013 to match the record set in 2012. New bond sales in Singapore dollars last year touched S$30bn, according to Thomson Reuters data, smashing the previous record of S$22.8bn set in 2010.
That heady pace has continued in the first month of 2013, with the tally of new bonds reaching S$2.95bn by January 25.
But even the most optimistic DCM bankers are limiting their estimates for 2013 issuance to S$25bn–$28bn. That may be a decline but it is still a very decent number considering that issuance has exceeded S$20bn only twice, in 2010 and 2012.
“For the first quarter, I can see a tightening in yields and tightening credit spreads, but that tightening will be mild. It won’t be as aggressive as that we had seen in 2012,” said a senior syndicate banker.
As with last year, new issues are emerging from a diverse range of sources. Bankers expect that to continue with property-related borrowers providing solid support to the market. Low benchmark rates and the search for yield should prompt more mid-cap companies to tap, which will offer more diversified supply to investors.
The government’s Housing Development Board remains the biggest local issuer, printing a S$1.2bn five-year deal in January to add to its S$4.2bn tally in 2012. Frasers Commercial Trust and National University of Singapore also returned to the local market, but the trend for overseas fundraisings has also continued.
ICICI Bank and Tata Communications each tapped Singapore dollar investors in January, adding to the flow of Indian deals in the local market and underlining the city’s appeal to foreign issuers.
Singapore is also proving to be a popular destination for financial institutions looking to top up their regulatory capital – a particular focus this year in the wake of the introduction of tougher Basel III rules.
ABN AMRO got the ball rolling in October with a S$1bn 4.7% 10-year non-call five Tier 2 bond that introduced Basel III language for the first time. Under the new capital adequacy regime, subordinated bonds will only count towards regulatory capital if they come with loss-absorption clauses. While European investors are holding out for more clarity over the details of those rules, Singaporean buyers welcomed ABN’s structure without insisting on a much higher yield.
Italy’s UniCredit followed in January with a S$300m 10-year non-call 5.5 Tier 2 note, the first Singapore issue from an Italian bank. Intesa Sanpaolo is vying to be the second, having organized investor meetings later in the month.
But DCM bankers caution that few local banks will attempt a Basel III-compliant issue.*
“It is going to be costly, and no one will be willing to test how much costlier bank capital is going to be,” said one debt origination banker. “There’s no real benchmarking for the local banks, unless DBS – being the largest bank and being state-backed to boot – is willing to set the benchmark for the others to follow.”
Covered bonds, however, may hold more promise for Singapore’s local lenders, amid expectations that the city’s regulator is ready to approve final rules for the sale of the senior secured notes.
Perpetual issues, too, are expected to remain an important part of the market – although to a lesser degree than last year.
Marine services provider Ezion was forced to pull a planned sale of perpetual securities in mid-January after failing to lure investors. Ezion sold its first perpetual in 2012, but a slump in newly sold perpetuals from Hong Kong-listed Agile Properties did not help its chances of a repeat.
Some pushback on perpetual bonds, however, may benefit origination bankers. With enough deals in the pipeline, banks should be able to resist any squeeze on fees. The spree of perpetual issues in 2012 did push fees lower as arrangers stepped up their competition for mandates, but the volume uptick helped offset the drop.
(*This article has been updated to remove an incorrect reference to the lack of clarity over Basel III regulations in Singapore. The MAS clarified its stance late last year.)
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