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.
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%.
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.