Singapore-based investors report that DBS and JPMorgan have been sounding out the market on a S$300 million ($165 million) offering securitizing a portion of the bank's corporate loan portfolio. Should it materialise, the transaction will not only mark a new step in the development of the Singapore ABS market, but also for Asia as a whole, since synthetic CLO's (collateralized loan obligations) have only ever previously been used in Japan.
For DBS Bank, the significance of the deal is that it should enable it to manage its capital adequacy ratios more efficiently. As such it does not represent a capital raising, but a capital saving. Synthetic CLO's and CDO's (collateralized debt obligations) have become popular instruments for banks in Europe seeking to move credit risk off their balance sheets and achieve better capital treatment.
DBS Bank, for example, is hoping to reduce the 100% risk weighting for parts of its loan portfolio, although it is not yet clear what the new treatment will be post deal. Unlike a cash securitization, where the assets are removed from the balance sheet and placed in an SPV (special purpose vehicle), here they remain on balance sheet.
The proposed offering is expected to have an average life of three-and-a-half years and will be multi-tranche, although it is believed the leads have not yet finalized whether it will be denominated in US dollars or Singapore dollars. Ratings will also span the gamut of triple-A to triple-B.
For DBS Bank, the deal should provide a cost-efficient means to manage its capital and underscore its reputation for innovation both from a capital management and securitization perspective. Where the former is concerned, DBS became the first investment grade bank (ex Japan) to use the international bond markets to fine tune its capital ratios, when it launched the first of a series of upper tier 2 bond issues in August 1999.
Where the latter is concerned, DBS also launched Singapore's first ever commercial property securitization this May, when it sold a S$984.5 million deal for Raffles City, owned by Raffles Holdings.
For JPMorgan too, the deal represents something of a breakthrough. Despite the fact that a number of DBS's past and current senior executives - including John Olds and Jackson Tai - hail from the US investment bank, it has never before been able to secure a capital markets mandate.