DBS introduces covered bonds

DBS Bank has issued US$1 billion (S$1.37 billion) worth of fixed-rate covered bonds due in 2018 - the first such offering by any firm here.

Covered bonds refer to debt issued by banks that is secured by their pool of residential mortgages.

The bonds bear a fixed coupon of 1.625 per cent a year, payable semi-annually in arrears.

The yield is lower than any other instrument of similar tenor that the bank has.

The bond has been structured so that if the bank "goes bust" and the mortgages in the collateral pool are sold, bondholders will be the first in the queue to receive their money, said Mr Yeoh Hong Nam, the head of wholesale funding at DBS Bank.

NEW FUNDING CHANNELS

"All of our customers and investors can expect to benefit from the bank's improved access to capital markets, as the new funding channels mean that the bank is even less likely to encounter liquidity problems."

MR YEOH HONG NAM, the head of wholesale funding at DBS Bank

The issue attracted orders of about US$1.37 billion from more than 40 investors, with banks anchoring the order book and accounting for 62 per cent of applications.

Fund managers received 19 per cent, central banks 9 per cent, supranationals and agencies 8 per cent and corporates and private banks 1 per cent each.

Orders were received from 16 countries, with a high level of representation from Asia at 51 per cent.

The proceeds from the bonds will go into the bank's general pool of funds, with redemption proceeds coming from the same source, said Mr Yeoh.

The net proceeds from the issue of each tranche of covered bonds will be used for general business purposes.

DBS met investors in Asia, Europe and the US last month to introduce its newly set up US$10 billion global covered bond programme.

It is the first issuer in the Republic to set up such a programme.

The Singapore lender has mandated itself, Deutsche Bank, JP Morgan and Societe Generale as joint global coordinators for the debut covered bonds.

Covered bonds are a cheaper source of funding for the bank than standard ones, said Mr Yeoh.

"All of our customers and investors can expect to benefit from the bank's improved access to capital markets, as the new funding channels mean that the bank is even less likely to encounter liquidity problems," he added.

UOB is also expected to launch a covered bonds programme in this half of the year.

A version of this article appeared in the print edition of The Straits Times on July 31, 2015, with the headline 'DBS introduces covered bonds'. Print Edition | Subscribe