Standard Chartered and Malayan Banking (Maybank) sold their inaugural public covered bonds to much fanfare in the euro market, with both choosing to issue the deals through their Singapore arms.
The success of the trades has highlighted the favourable market conditions for covered notes, as well as the market's growth in Asia. StanChart has set itself a target to sell covered bonds annually.
Both new issuers mentioned the size and importance of the euro covered bond market, and the opportunity it presents for first-time issuers.
"We launched the covered bond to provide product diversification to our existing liability base as part of our diversification strategy, and to access a new pool of European-based investors," said Odie Lee, group corporate treasurer at Maybank. The bank had never sold a syndicated senior bond denominated in euros.
For Standard Chartered, the choice to issue in euros came despite knowing that a US dollar deal would have been cheaper, given that it will be swapping the proceeds into that currency.
"Demonstrating the liquidity of our name as we build up a name for ourselves is more important" than price, said Richard Sykes, head of treasury markets for ASEAN and Singapore at Standard Chartered.
StanChart’s €500m (US$541m) three-year 3.324% covered bond came a week prior to Maybank's, amid a flurry of other covered deals globally. The bank still managed to gain ample investor attention, allowing it to price its maiden covered at mid-swaps plus 22bp, inside initial guidance at 28bp area, meeting its fair value estimate.
The bond, sold through the bank’s Singapore branch, is 100% backed by a pool of Singaporean residential mortgages.
Singapore was chosen as the issuing jurisdiction because of the strength and quality of the bank's assets in Singapore.
"If you look across jurisdictions across the world … Singapore being a AAA rated sovereign provides one of the highest quality collateral bases for us," said Sykes. "As our balance sheet grows, as the franchise continues to develop … it means that now is the right time to launch a product like this."
Stellar debut
StanChart used pricing references such as the DBS €1bn 3.2087% 2026 covered bond, which priced in February at mid-swaps plus 29bp, as well as more recent three-year deals from European borrowers. The DBS bond was trading at a spread of 15bp when the StanChart deal was announced.
David So, managing director for debt capital markets in Asia Pacific at Societe Generale, one of the leads on the deal, estimated that a new three-year covered bond from one of the three major Singaporean banks would land in the 20bp area.
StanChart was able to tighten inside the mid-20bp level it had expected to pay as orders peaked at €1.65bn and settled at €1.45bn at reoffer, including €250m of lead interest.
So said the final results were "very much above expectations".
"We had some feedback from investors [with] a range of different opinions. We had a view that if we got the right bookbuilding, we could reach the low 20s,” he said.
Investor meetings began on May 13, targeting the European market in part to expand its investor base as well as to tap the market with the “deepest pockets” for covereds, Sykes said.
For future trades, the lender is not ruling out the US dollar, sterling or other currencies, or longer tenors.
The bonds are rated Aaa/AAA (Moody's/S&P), above StanChart's A1/A+/A+ rating. They are guaranteed by Banzu Covered Bonds, which holds the mortgages in trust.
DZ Bank, LBBW, Natixis, Societe Generale and Standard Chartered were the joint bookrunners.
Maybank follows
Maybank rode on StanChart's coattails to price its inaugural €500m three-year mortgage-backed deal on Wednesday.
StanChart and DBS served as markers for Maybank’s long-awaited debut – the trade had been in the works for two years and the bank announced investor roadshows on March 25 to discuss its US$10bn covered bond programme – but market participants had anticipated that, being a smaller bank, Maybank would need to offer a pick-up to investors.
“In Singapore, the differential between different credits on the covered side is just single digits,” a lead banker said. “This is a Singaporean bank with a very strong covered pool … a very strong covered bond framework, Triple A rated by Moody’s/S&P."
The banker said StanChart's debut was the best reference as a starting point for pricing.
“And from there, we just calculated back what kind of premium investors are expecting to get involved,” he said, adding that the leads were eyeing a starting level within a 30bp–35bp bracket.
Ultimately, BNP Paribas, DBS, Deutsche Bank, HSBC, Helaba and Maybank began marketing Maybank’s no-grow trade at mid-swaps plus 32bp area – 4bp above where StanChart started its execution and 10bp above where it priced.
Orders peaked at €1.4bn and closed north of €1.25bn (including €150m of lead interest), enabling Maybank to land at plus 25bp.
“The trade performed very well in primary … and I know that bank treasuries were looking at this,” a banker away from the trade said. “For them, it’s quite nice getting down to the 25bp level, though a lot of investors might have thought that this was a little bit tight.”