Less than a year after selling Singapore’s first covered bonds in US dollars, DBS printed an upsized A$750m (US$540m) three-year floating-rate note issue at 77bp over three-month BBSW, inside guidance of 80bp area.
The Aussie dollar debut made DBS the first Asian covered bond issuer to venture beyond G3 currencies, and the first international bank to sell a covered Kangaroo before visiting the more established euro market – underlining Australia’s growing relevance as a source of funds for global issuers.
DBS had considered issuing in the more established euro market and even eyed a sterling deal, but the Australian market offered an opportunity to diversify at the most attractive cost, equal to a negative rate in euros.
The Singapore lender reaped the rewards of an extensive marketing effort in the Asia-Pacific region that included investor meetings in Sydney, Melbourne and Brisbane through a broad syndication team, assisted by Barclays, National Australia Bank, RBC, Westpac and DBS.
Orders reached a hefty A$1.3bn, dwarfing the A$400m book for a five-year covered bond from Canada’s CIBC a month earlier, and allowing DBS to increase the issue from an indicative A$500m.
The deal, part of the bank’s US$10bn global covered bond issuance programme, also helped boost DBS’s presence in Australia following the opening of its Sydney branch in September 2015.
“We are an Asian issuer and familiarity with the DBS name in Asia-Pacific is very strong,” said Yeoh Hong Nam, head of structured and wholesale funding at DBS. “So, from a strategic standpoint, it made a lot of sense to do this.”
“Feedback from the last US dollar issue was that investors would be keen on an Australian dollar issue if we were to consider another currency. It opens up new conversations with Australian investors, but it also opens up conversations with investors that could not get into the US dollar offering.”
Asian investors were important to the success of the deal, buying 57% of the bonds. The participation of local buyers, however, justified the decision to target the Kangaroo format. Australia accounted for 33% of the deal, and the remaining 10% went to Europe.
Unlike senior unsecured Kangaroos from global banks, DBS’s covered bonds are repo-eligible with the Reserve Bank of Australia due to their Triple A ratings from Moody’s and Fitch Ratings. As a result, they qualify for the RBA’s committed liquidity facility.
Banks took 85% of the covered Kangaroo notes, asset managers picked up 11%, official institutions 3% and others 1%.