DBS Bank closed an aggressively priced $1 billion five-year bond early yesterday morning. The Singapore lender tapped US investors for the first time, making it one of the few local borrowers aside from Temasek to target that investor base. US investors took up close to half of the deal and helped drive pricing tighter.
Bank of America Merrill Lynch, DBS and Goldman Sachs were joint bookrunners.
The deal attracted an order book of $1.9 billion from 118 accounts. The bonds priced at Treasuries plus 145bp compared to the Treasuries plus 150bp initial guidance and came inside its secondary bonds on a curve-adjusted basis. The coupon was fixed at 2.35%.
“DBS Bank’s deal demonstrates the ability of US investors to drive pricing of a deal tighter,” said one person familiar with the deal. “The DBS 2015s — which were offered to Asian and European investors only — was trading at a Treasury curve-adjusted spread of 154bp and the fact that the new bonds came inside of that indicates the value in tapping the US investor base,” he added.
However, rivals suggested that the deal came too tight and that printing a $1 billion bond on a $1.9 billion book meant that the deal was too chunky. The bonds were quoted at Treasuries plus 150bp/148bp in the secondary market yesterday morning, 3bp to 5bp wide of the issue spread.
“That’s three deals in a row from DBS that were too big and too tight, and traded poorly in the secondary [market],” said the rival. However, the person familiar with the deal said that credit spreads moved about 4bp wider yesterday and, in that context, the bond had not underperformed.
US investors were allocated 48%, Asian investors 43% and European investors 9%. Banks bought 35%, asset managers 24%, insurance funds 16%, companies 15%, central banks 5% and government accounts 5%.
Back in 2010, DBS tapped the bond market with a $1 billion five-year deal that paid a 2.375% coupon and was reoffered at 99.691 to yield 2.441%. Those bonds priced at a spread of 100bp over Treasuries. Bank of America Merrill Lynch, Barclays Capital and DBS Bank were joint bookrunners.
Elsewhere, in the Singapore dollar bond market, commodities trader Olam International priced its unrated S$275 million perpetual ($218 million) at a yield of 7% last night.
The initial spread is 496.5bp over the 10-year swap offer rate. There is a 100bp step-up in the 10th year, as well as a reset in the 10th year and every 10 years thereafter. Olam’s perpetual also has a dividend pusher with a 12-month look back period and a dividend stopper. The bonds are callable on March 1, 2017 and every distribution date thereafter.
DBS, J.P. Morgan and UBS were joint bookrunners.