Singapore Capital Markets Deal

IFR Asia Awards 2016
3 min read
Asia
Daniel Stanton

United Overseas Bank set the standard for other Asian issuers to follow with the region’s first covered bond in euros, opening the traditional home of the format to well-regarded Asian lenders.

The first euro covered bond from Asia Pacific, excluding Australasia, may have looked effortless, but years of planning and extensive European roadshows were needed to lay the groundwork before the €500m (US$530m) five-year deal in March.

UOB is not a frequent issuer of senior bonds offshore, but when it decided to engage more European investors a covered bond was the natural choice.

As the pioneer for the Singaporean banking sector, it used covered bonds from the Australian major banks for comparison, but ended up pricing flat to or inside them. The Aaa/AAA (Moody’s/S&P) rated transaction priced at mid-swaps plus 32bp, from initial guidance in the high 30bp area.

The low yield was especially impressive, given that UOB’s bonds were not eligible for repurchase under the European Central Bank’s bond buying programme.

Despite the tight pricing, the issue drew orders of more than €1.3bn from 76 investors. German and Austrian buyers took 39%, followed by Asian investors with 17% and UK accounts with 16%, while investors from Switzerland, the Nordics and Benelux also participated, with particularly strong demand from banks, asset managers and official institutions.

UOB wanted the bonds to be listed in Singapore rather than on a European exchange – something that some investors resisted at first, as it was the first time a euro covered bond had been listed in a country outside the OECD.

They were reassured by UOB’s decision to publish the Covered Bond Label Harmonisation Transparency Template, the first issuer to do so. This requires UOB to make monthly disclosures about its covered bond asset pool, providing transparency.

The cover pool comprises residential mortgages in Singapore dollars, which required UOB and its arrangers to explain the city state’s housing market, the rules around transfer of title, and the support offered by borrowers’ Central Provident Fund schemes.

UOB hired a team of bookrunners with different strengths to target the most diverse pool of investors. BNP Paribas and UOB were joint arrangers. They were also joint bookrunners with Commerzbank, DZ Bank, HSBC, Natixis and UBS.

Not only did UOB’s debut covered bond open the European market for other Asian issuers to follow, but some of the investors approached for this deal ended up coming into its other deals in US dollars, showing that it had made its mark and truly engaged the European investor base.

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