DBS tapped the covered bond market for the third time, tapping the euro bond market this time for a 750 million euro (US$798 million) offering. This is part of its strategy to diversify its investor base, accessing a new pool of demand in different currencies.

The seven-year issue bears a fixed coupon of 0.375% per annum to yield 15bp over mid-swap, or 2bp tighter than the initial guidance. The bond will be guaranteed as to payments of interest and principal by Bayfront Covered Bonds Pte Limited (BCB). The guarantee is secured by a portfolio consisting of mortgage loans purchased by BCB from DBS, and other assets of BCB.

“DBS has been monitoring the market for some time now,” says Raj Malhotra, managing director and head of debt capital markets for Southeast Asia, India, and Australia at Societe Generale, which acted as a joint bookrunner and lead manager for the transaction. “We’ve seen a very strong appetite among the euro investor base at the start of the year, with around 28 billion euro of existing covered bond redemptions this month. So we felt that this was a good time for DBS to tap into this demand as many investors would be looking to re-invest their cash.”

The arrangers opened the books in the morning of January 16, Asia time, to allow the Asian accounts to look into the deal. It then announced the price guidance when Europe opened at 17bp area over mid-swap and a maximum deal size of 750 million euro.

The demand grew quite rapidly, and the total order book amounted to a little over 950 million euro from high quality accounts. The deal was eventually printed at 15bp over mid-swap, a level which compared well with DBS’ peers, such as the Australian banks.

As Malhotra notes, for instance, the ANZ seven-year covered bond issued in November last year was quoted at between 13bp and 14bp. So for DBS to print at 15bp+ for a debut seven-year was a strong result, as it came in line with where a new Australian issue would come to the market today.

The transaction not only opened the covered bond market for Asia-Pacific issuers in 2017, but it also set a benchmark as the longest tenor covered bond by an Asian bank, thus setting a precedent for others in the region to follow.

“It’s not often you see a non-European bank launch its debut euro covered bond issue in the seven-year part of the curve,” notes Malhotra. “It is a real testament to the goodwill DBS has built up with European investors, through regular meetings since they set up their covered bond programme in 2015 – in both traditional and new jurisdictions.”

Indeed, Benelux and Nordic investors accounted for 28% of demand in this transaction – practically new investors to DBS credit. Another 57% came from Germany and Austria, 7% from France, 3% from Switzerland, 3% from Asia, and 2% from other jurisdictions. The 3% allocation to Asia is a strong message of DBS diversifying away from its home market.

Proceeds from the latest issuance will be used for general business purposes. DBS acted as the sole global coordinator for the transaction as well as joint bookrunner and lead manager along with Deutsche Bank, J.P. Morgan, Societe Generale, and UniCredit Bank.

DBS was the first Singapore lender to price a covered bond when it printed a US$1 billion offering in July 2015. The three-year deal had a coupon of 1.625% per annum – equivalent to a spread of 37bp over mid-swaps or 3bp tighter than the initial price guidance of 40bp area.

The bank tapped the market for the second time in May 2016, when it accessed the Australian dollar market for A$750 million (US$560 million). The three-year floating rate notes paid a quarterly coupon of 0.77% over the three-month bank bill swap rate – described then as extremely appealing pricing as it was able to secure a negative euro yield on an after-swap basis.

The first to issue a euro-denominated covered bond out of Asia was another Singapore lender UOB, which priced a 500 million euro deal in March 2016, with a coupon of 0.25% to yield 32bp over mid-swap.