United Overseas Bank, Singapore’s third-largest lender by assets, sold $1.28 billion of euro and dollar covered bonds on Wednesday, as enthusiasm for the mortgage-backed securities continues to grow in Asia.
The Singapore lender, rated Aa1/AA-/AA- by Moody’s/S&P/Fitch, issued a $500 million three-year note and another €500 million ($528 million) five-year note, two days after it sold a S$750 million tier-2 bond to Singapore-dollar investors. It is the first dual-currency covered bond deal from an Asian issuer.
The deal follows Singaporean rival DBS's maiden foray into euro-denominated covered bonds in January, reflecting strong appetite among European investors for the asset class.
Final order book for the US dollar offering reached $900 million from 34 accounts, while the euro tranche received €1 billion of orders from 54 accounts, according to a banker running the deal. Both offerings are backed by Singapore-denominated mortgage loans and will be listed on the Singapore Exchange.
“UOB’s two new prints were priced at fair value or very close to their fair value, as investors view them as low-risk investments,” a syndicate banker running the deal said. “Investors have recourse to both the issuing bank and the underlying assets in the event of default.
“Investors, especially in Europe, are very familiar with the structure to the relatively safer asset class, therefore they are comfortable holding covered bonds issued by Asian banks,” the person added.
For the dollar offering, the group went out with an initial price talk at mid-swap rate plus 50bp, before tightening the March 2020 deal to the area of mid-swap rate plus 47bp. Final pricing was at 99.734 on a coupon of 2.125% to yield 2.217%, or 45bp above the mid-swap rate, according to a term sheet seen by FinanceAsia.
Initial price guidance for the euro-denominated five-year bullet was pitched at mid-swap plus 14bp, before narrowing to the 12bp area. Final pricing of the March 2022 offering was fixed at 99.498 on a coupon of 0.125% to yield 0.226%, or mid-swap rate plus 10bp.
The new dollar note was trading slightly up in the secondary market on Thursday. According a syndicate banker, the $500 million March 2020 note was trading at 99bp over two-year US Treasury yields, about 3bp tighter than its reoffer price at 102.5bp over Treasuries. The euro offering had not started trading in early Asian hours at the time of going to press.
Asian banks are gradually issuing the collateralised securities as a growing number of long-term funds seek positive returns from Asian fixed-income assets after bond buying by the European Central Bank pushed sovereign yields deeper into negative territory.
DBS Group raised €750 million from its euro covered bond debut last month – a seven-year deal mostly sold to new investors in Europe. Asian banks sold $2.8 billion of covered bonds last year, up from $2 billion in 2015, data from Dealogic shows. Last year, UOB became the first Asian bank to make a foray into the euro covered bond market.
Banks were the major buyers of UOB’s dollar covered bond, representing 55% of the deal. Central banks/agencies took 30%, funds 13% and others 2%. By geography, European and Asian investors took 59% and 41%, respectively.
In the euro tranche, German investors accounted for 48% of the deal, followed by 13% from the UK and 9% from the Nordic countries. France, Switzerland and Asia each took 7%, the Netherlands 5%. The remaining 4% went to other European Union countries. By investor type, funds took 44%, banks 26%, central banks/ agencies 14%, corporates 6%, pension funds/ insurers 7%. The remaining 3% went to others.
Joint bookrunners for UOB’s two new covered were Deutsche Bank, DZ Bank, HSBC, UBS and UOB.
