Breaking the mould
DBS heralded Singapore’s long-awaited arrival in the covered bond market with a deal that opened up an alternative funding channel for the city-state’s banks and paved the way for further supply from rival institutions.
The deal put an end to the long wait for an inaugural Singaporean trade after the framework had been years in the making. But DBS was well prepared, moving swiftly to announce its US$10bn programme in June – just days after the Monetary Authority of Singapore finalised the rules.
Bankers viewed the deal as a vote of confidence in DBS’ credit, Singapore’s broader banking system and its residential mortgage market, and one that provided a solid platform on which other banks could build.
The deal stood out in a year when the ECB’s third purchasing programme further tightened its grip on the European market, providing a backstop for eligible deals as other investors were priced out of the market.
Singapore was the first new jurisdiction to join the covered bond market this year. South Korea’s Kookmin Bank followed in October, for which DBS’ issue provided a useful comparable, but deals from Turkey and Poland have yet to emerge.
Greater diversity within DBS’ investor base was a key driver for the deal, particularly because covered bond funding tends to offer a reliable channel of funding even in more challenging market conditions.
DBS met investors on a global roadshow across Asia, the US and Europe, and half of the final allocations went to investors outside Asia. Most European investors in the deal had not bought DBS credit before.
It received strong support from banks, which bought 62% of the deal, with fund managers and central banks/supranationals buying 19% and 17% respectively.
It was the first deal from outside Europe to be awarded the European Covered Bond Council’s covered label, something that provided a key stamp of approval when marketing the bond.
The US$1bn three-year deal, which was 1.4 times subscribed, also reduced DBS’ funding costs. At swaps plus 37bp, it was priced 20bp inside its senior funding level and paid a low new issue premium compared with more established covered bond issuers from Australia and Canada.
“The fact that DBS could embrace the European concept and attract European demand was crucial to its achieving a spread 20bp inside the senior curve,” said Demetrio Salorio, global head of debt capital markets at Societe Generale, a joint global coordinator on the deal alongside Deutsche Bank and JP Morgan. Barclays and Citigroup were bookrunners.
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