Made to measure
In a year when South-East Asia provided a welcome alternative to a slowing Chinese market, one bank best captured the opportunities. For its measured approach and increasingly integrated capital markets offering, DBS is IFR Asia’s Asian Bank of the Year.
DBS’s regional footprint and long-term focus made the difference in 2019 as South-East Asia took on greater significance in the capital markets.
The bank ended 2019 – as it always seems to – on course for another year of record profits, having grown net earnings 13% to a record S$4.88bn in the first nine months of the year.
In the institutional bank, an upswing in equity capital markets activity in South-East Asia and a surge in debt capital markets activity across the region played into its hands in 2019, although DBS was far more than a passive beneficiary of wider industry trends.
It led the way on different structures, whether it was bringing new issuers and investors to Singapore’s red-hot real estate investment trust market or paving the way for foreign banks to tap the Singapore dollar bond market for Additional Tier 1 capital.
It spotted trends ahead of many of its peers such as the growth in US dollar bond issuance from some of Singapore’s top-tier credits or the growing appetite among the city’s REIT investor base for new economy assets.
DBS’s strong balance sheet and dominant position in its home market allows it to take a measured, long-term approach to investment banking, rather than chasing one-off deals, and insiders increasingly talk of closer integration in the way the bank deals with institutional clients.
It has managed to incentivise its employees to look beyond their own narrow product set – in stark contrast to the typical investment banking model – and recent management changes have reinforced connections between different business units.
“Banks operated in product silos in the past. But that no longer works in today’s world where businesses and industries are transforming digitally,” said Tan Su Shan, group head of institutional banking.
“If you want a seat at the table with the CEO or chairman, you need to have a full understanding of the factors that would impact customers and be able to offer the right advice and offering at the right time to put them ahead of the curve.”
Tan’s appointment as head of institutional banking in February following Jeanette Wong’s retirement, an unusual choice given her background in consumer banking and wealth management, reflects DBS’s efforts to bring a more joined-up offering to its investment banking clients.
The bank has also taken steps since Tan was appointed to sharpen its focus on key sectors. It recently set up a platform companies coverage team within technology, media and telecommunications to improve its offering to technology giants such as Alibaba, Grab and Tokopedia.
DBS’s latest results impressed across the board, with non-interest earnings especially remarkable. Net fee income rose 17% in the third quarter from the same period in 2018, trading income rising 22%.
Investment banking fees more than doubled.
“We’ve reorganised our institutional banking sector coverage teams to sharpen their focus on each industry vertical while maintaining a holistic view of the capital markets,” said Tan. “We also have the strongest research platform out of any of the local banks in the region, supported by around 150 to 200 analysts.”
In-house investment bankers are cognisant of this holistic approach. This means occasionally missing out on mandates as DBS is only able to do deals with issuers that it has already onboarded and have a wider relationship with the corporate bank, although the strategy pays dividends in other ways through repeat business.
Manulife US REIT, which hired DBS as sole coordinator for a debut US$193m club loan, is a case in point. The bank acted as sole financial adviser on the REIT’s US$470m IPO three years ago and was also joint lead manager and underwriter on both its US$80m placement and its US$62.7m preferential offering this year.
DBS cemented its reputation as the leading bank in Singapore ECM following a bumper year for REIT IPOs. It was financial adviser on all four IPOs last year – ARA US Hospitality Trust, Eagle Hospitality Trust, Prime US REIT and Lendlease Global Commercial REIT.
It also acted as underwriter on several overnight placements including the US$171.1m Keppel DC REIT placement and the US$291.4m Mapletree Industrial Trust trade. Both were priced at a tight discount and were multiple times oversubscribed, benefiting from strong demand from both global and Asian institutional investors.
“The placement was quickly oversubscribed after launch. Keppel DC is currently the only data centre REIT of scale in Asia so there was strong demand among institutional investors, seeking yield plus exposure to the new economy,” said Eng-Kwok Seat Moey, head of the capital markets group. “The overwhelming success paved the way for many other successful REIT placements that followed.”
DBS benefited from a strong year in Asian credit and led the way in both US and Singapore dollars in South-East Asia. This included being joint bookrunner on the Land Transport Authority of Singapore’s 40-year S$1.5bn (US$1.1bn) 40-year bond, the longest tenor ever printed in the Singapore dollar bond market. It was also on several US dollar trades for Singaporean issuers including Clifford Capital and PSA International.
“We have been encouraging local issuers to explore offshore non-Singapore dollar issuance when it is more cost effective to do so,” said Clifford Lee, head of fixed income. “For instance, in the current market, investment grade issuers may be able get cheaper Singapore dollar funding by issuing in US dollars for up to 10-year tenors and swapping the proceeds back to Singapore dollars.”
DBS was also quick to spot the trend among European banks to tap Singapore for Additional Tier 1 capital thanks to the substantial cost savings against US dollars and led several deals including UBS Group’s S$750m perpetual non-call five deal, which priced at one of the lowest spreads for a foreign AT1 issue in Singapore dollars.
DBS also burnished its regional credentials in 2019 by expanding its footprint outside its home market. It continued to take a deliberate approach, often foregoing deals and league table credit if they did not fit its overall strategy.
In DCM, the bank was less active in Chinese high yield compared with its competitors and focused instead on investment-grade issues, such as Chinese state-owned enterprise State Development and Investment Corp’s US$1bn dual-tranche deal and SMC Global Power Holdings’ US$500m senior perpetual offering in the Philippines.
“We’ve outperformed the market in investment grade bond issuances this year because our practice of banking our clients extensively across different products has paid off, but more work needs to be done in the high-yield space,” said Lee.
Still, the bank demonstrated that it was not afraid of taking on risk. It was MLA, bookrunner and underwriter on the US$185m loan facility in connection with TPG’s acquisition of a telecom towers business in Myanmar, the first leveraged buyout loan in the country to be syndicated.
Meanwhile in Singapore, it was one of four MLAs and bookrunners on the S$8.67bn in new debt and amendment-and-extension exercise for Marina Bay Sands, the largest ever Singapore dollar-denominated syndicated financing. The deal garnered overwhelming support, attracting 34 banks in syndication.
In March, DBS also launched a wholly owned subsidiary in India, becoming only the second bank (the other was State Bank of Mauritius) to take advantage of rules introduced in 2013 to encourage foreign banks to convert their branches into subsidiaries. It has since been expanding its touchpoints, branches and kiosks, as it looks to win more business in India.
DBS’s measured approach was also on show in China, where it continued to expand without taking on undue risk. It continued to work towards a majority-owned securities joint venture in 2019 and won a settlement licence for the vast interbank bond market, deepening its presence in the onshore capital markets at a time when China is opening up.