DBS Bank’s US$1bn covered bond set a template for Asian banks in a global market that has proven to be resilient in times of crisis.
After Australian lenders embraced the format in 2012, DBS’s senior secured benchmark marked the first true covered bond from Asia, providing a guide for other high-rated banks looking to safeguard their access to international funding.
When DBS was finally ready to hit the button, after three years of internal preparation and discussions with the city-state’s regulator, elements worthy of a Greek drama began to appear.
An extensive global roadshow to showcase the Aa1/AA– rated Singaporean lender coincided with another round of debt problems in Greece. Chinese equities had also begun their correction, sending global stocks and bonds plummeting.
Joint global coordinators DBS, Deutsche Bank, JP Morgan and Societe Generale could have launched the trade against this backdrop. As one of the highest-rated banks in Asia, with low non-performing loan ratios, DBS could still have printed a deal, but, given the importance of setting a benchmark, it decided to wait.
A few weeks later, the clouds began to clear, and DBS’s first covered bond was born. In far-from-ideal conditions, the results were impressive.
Despite being a debut issuer and the first out of Asia, it paid a very low new-issue concession relative to established covered bond peers from Australia and Canada, highlighting investor confidence in the structure and safe-haven Singapore assets.
“It was a win-win situation,” said Raj Malhotra, head of debt capital markets for South-East Asia and India at Societe Generale. “Investors got a Triple A bond from a Double A bank in a Triple A jurisdiction, and DBS got an attractive cost of funding. The debut covered bond opened a new market and it provided broader investor diversification.”
At a 1.643% yield, the three-year covered bond offered around 20bp of savings versus comparable senior unsecured funding.
Many of the investors were first-time buyers for DBS. EMEA accounted for 30% and the US for 19%, with the rest going to Asia.
On the back of the success of its debut, DBS hit the road in November ahead of a second covered bond issue, this time in the sterling market. That month, UOB also set up its own covered bond programme, a sign that DBS’s Singapore peers had noticed its achievement.
Not only will it serve as a benchmark for expected covered deals out of Singapore, but it has already helped guide South Korea through its first statutory covered bond from Kookmin Bank.
It may have been a long time coming, but, if a deal is worth doing, it’s worth doing it properly.
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