DBS diversifies with debut euro covered bond

The Singapore lender raises €750 million in a seven year deal, with the majority coming from first-time DBS investors in Europe.

Singapore's largest bank, DBS Group, sold its first-ever euro covered bond on Tuesday morning  –  a sign of its desire to develop momentum for this relatively new asset class in Asia.

The Reg S sale represents the lender's third foray into the covered bond market after it raised $1 billion from a US dollar covered bond in July 2015 and A$750 million ($565 million) from an Aussie dollar deal in May last year. It is just the second euro covered bond from a Singapore issuer, after UOB last year sold Asia's first covered bond in euros.

Funding diversification was the key objective for Singapore’s largest lender, with about two thirds of the entire deal by nominal value sold to new investors in DBS's paper.

“DBS’s inaugural euro covered bond has afforded us access to the world’s deepest and most established investor base for the asset class,” Hong Nam Yeoh, DBS's head of wholesale funding, told FinanceAsia in a phone interview.

The lead managers – DBS, Deutsche Bank, JP Morgan, Societe Generale and UniCredit – went out with initial guidance at 17bp over mid-swaps, before narrowing the seven-year deal to 15bp over. The January 2024 deal will pay a coupon of 0.375%, a term sheet shows.
“We were particularly pleased to see a significant allocation to the cooperative banking sector in Germany, who have never participated in our transactions before,” said Yeoh, adding that 57% of the book was placed to German and Austrian investors.

In addition, investors from Belgium, the Netherlands, and Luxembourg took 18%, while Scandinavia took 10%, France 7%, Switzerland and Asia each had 3%. The remaining 2% went to others. By investor type, banks took 45%, funds 26%, central banks/supranationals 19%, corporates and others each had 5%.

The final order book reached  €950 million from 45 accounts, including  €30 million from its joint bookrunners.
DBS’s covered bond is entirely backed by Singapore dollar- denominated residential property mortgages.  A construct within the programme manages potential currency mis-matches between the collateral pool and non-SGD denominated issuances, according to Yeoh.

Covered bonds, which are usually backed by a pool of residential mortgages, provide an alternative channel to banks alongside deposits and other short-term borrowing. The low-risk securities have been popular in Europe given their safety nature, but they have had a slow start since South Korea's largest lender, Kookim Bank, sold Asia's first covered bond in 2009.

According to Dealogic, Asian banks sold $2.8 billion worth of covered bonds in four deals last year, up from $2 billion in three deals the prior year.

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