United Overseas Bank (UOB) returned to the covered bond market following its debut in March last year, making it the first Asian issuer to tap the market in dual currencies.

The Singapore lender on February 22 printed a three-year US$500 million tranche, which was priced at 99.734% with a coupon of 2.125% to offer a yield of 2.217%. This was equivalent to a spread of 45bp over mid-swap, or 2bp tighter than the revised guidance of 47bp area and 5bp inside of the initial guidance of 50bp area. The bonds performed in the secondary market and are quoted at 102.50 shortly before lunch on February 23.

The bank also priced a five-year 500 million euro (US$528 million) tranche, which was priced at 99.498% with a coupon of 0.125% to offer a yield of 0.226%. This represented a spread of 10bp over mid-swap.

“The euro tranche paid no new issue premium, while the US dollar tranche achieved a respectable pricing versus some of the Australian banks’ issues,” says a banker familiar with the deal.

UOB priced its inaugural covered bond offering amounting to 500 million euro at 99.653% and a coupon of 0.25% to yield 32bp over mid- swap.

In launching the latest transaction, UOB hit the sweet spots in terms of tenors in both markets for covered bond. “The investors knew that UOB is looking to launch the covered bond in two currencies. This strategy attracted a good mix of investors and augurs well for investor diversification,” the banker says.

The deal arrangers adopted a two-day execution process, conducting an investor update calls on February 21. They opened the books on February 22 for the US dollar tranche during the Asian session and gained traction particularly from the Asian banks’ treasuries.

This strategy benefited the euro tranche part of the deal as the European investors started putting in orders when they saw the strong Asian response in the US dollar tranche. “It provided a positive momentum when UOB announced the euro tranche during the European session and the books continued to grow as the European accounts placed orders in both tranches,” the banker adds.

The offering was drawn from UOB’s US$8 billion global covered bond programme and is backed by 100% Singapore dollar-denominated residential mortgage loans.

The US dollar tranche attracted an order book of over US$900 million from 34 accounts with 59% of the bond distributed in Europe and 41% in Asia. By type of investors, banks accounted for 55%, central banks and agencies 30%, funds 13% and other investors 2%.

The euro tranche, on the other hand, garnered a total demand of over one billion euro from 54 accounts. In terms of geographic distribution, 48% was sold in Germany, 13% in the UK, 9% in Nordic countries, 7% each in France, Switzerland and Asia, 5% in the Netherlands and 4% in other European Union countries.

Funds were the biggest buyers with 44%, followed by banks with 26%, central banks and agencies 14%, pension funds and insurance companies 7%, corporates 6% and other investors 3%.

Deutsche Bank, DZ Bank, HSBC, UBS and UOB were the joint bookrunners for both tranches, while BNP Paribas was a joint lead manager for the euro tranche.

The covered bond deal was the second major fund raising by UOB this week, having priced on February 21 a S$750 million (US$532 million) Basel III-compliant tier 2 capital. The 12-year non-call seven deal was the largest such securities raised in Singapore dollar bond market and the tightest priced ever.

The offering was multiple times oversubscribed and distributed to a balanced mix of financial institutions, corporates and private banks.