Lion City awakens
Lloyds Banking Group’s 10-year non-call five Tier 2 bond in August marked its first marketed deal in Singapore dollars. More importantly, the British banking group was the first foreign bank to raise capital in Singapore after Credit Suisse wrote down its Additional Tier 1 bonds in March, making the Lloyds sale the Singapore Capital Markets Deal of the Year.
The Singapore dollar market had seen a flurry of foreign bank capital deals in the first quarter, but that came to a screeching halt in late March.
Lloyds’ successful execution was essential to proving that investor appetite for bank capital in Singapore was back.
Investors globally were nervous about bank capital deals after the Credit Suisse incident, and wealthy Asian investors in particular felt burned. Credit Suisse had issued AT1s in Singapore dollars, which were popular with local private bank investors, and those were among the notes to be wiped out when it was acquired by UBS.
Singapore’s Oversea-Chinese Banking Corp found good appetite for an AT1 issue in early August, after the Monetary Authority of Singapore had issued a statement saying it would make equity holders absorb losses before capital notes if any domestic banks ran into difficulties.
That created favourable conditions for Lloyds to test the waters for foreign banks the following week, but it was still unclear how receptive investors would be to European capital deals.
Lead arrangers and managers DBS Bank, HSBC, OCBC and Standard Chartered cautiously marketed the Lloyds bond for two days, gathering pricing thoughts and indications of interest on August 14, before coming out with price guidance of 5.5% area on August 15.
The work proved helpful as orders grew to S$700m (US$522m) by noon and peaked at S$1.14bn. Lloyds raised S$500m from the bond which was priced at par to yield 5.25%.
The final order book was over S$1bn from 63 accounts, including S$5m from the leads. Private banks were allocated 54%, fund managers and life insurers 43%, and banks 3%. Singaporean investors took up 93% and foreign investors the rest.
The deal allowed Lloyds to diversify its funding sources by reaching investors in a new currency. The borrower had previously issued bank capital in US dollars, sterling, euros and yen. Singapore dollars also offered lower funding costs, with a banker estimating savings of around 18bp–20bp compared to a sterling print.
The strong response to the Lloyds Tier 2 reopened the Singapore dollar bank capital market for foreign issuers.
Credit Agricole followed Lloyds into the market with a S$350m 10-year non-call five Tier 2 bond priced at 5.25% in late August, as did Commerzbank with a S$300m 6.5% 10.5-year non-call 5.5 in October.
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