Julius Baer's maiden Singdollar perpetual bonds snapped up

Singapore

SWISS bank Julius Baer's maiden issue of S$450 million Basel III-compliant perpetual Additional Tier 1 (AT1) bonds has been snapped up.

Launched on Wednesday, orders reached in excess of S$1.8 billion.

Consequently, the perpetual bonds were finally priced at 5.9 per cent, down from the initial price guidance of 6.375 per cent.

Orders proceeded briskly from the get-go, with indication of interest in excess of S$500 million half an hour after the sale began in the morning, a source said.

"In the context of the Singapore dollar bond market, it is difficult to find such yield," said one fixed income banker.

Order books of circa S$1.8 billion had strong support from private bank investors, said Clifford Lee, DBS Bank's head of fixed income.

The issue size grew to S$450 million to accommodate the overwhelming demand, said Mr Lee.

The Swiss bank last month said that it intends to sell SGD perpetual tier 1 subordinated bonds in a benchmark-sized volume - at a minimum of S$250 million-S$300 million - making it the first foreign bank to issue such a bond in the Singapore market.

"It ticked all three boxes - familiar name, attractive yield and strong investment grade rating," said Mr Lee of the strong interest.

Banks handling the deal are Citigroup, DBS and UBS.

The new bonds are the highest-yielding AT1s in the SGD bond universe, since the existing AT1s are issued by the three local banks which are larger and have superior credit ratings, wrote iFAST in a note on the Julius Baer offering on Monday.

Moody's has given Julius Baer a rating of A3 (negative outlook) while the expected issue rating is Baa2.

DBS, OCBC Bank and United Overseas Bank (UOB) all have Aa1 issuer rating by Moody's while their ATI SGD perpetual bond issues are rated A3.

Julius Baer's credit rating of A3 from Moody's is five notches below the Aa1 ratings for DBS, OCBC and UOB, noted iFAST.

As for the expected issue rating of Baa2 for the Julius Baer bonds, iFAST said that "this is two notches below the A3 rating accorded to the other four AT1 SGD-denominated bond issues currently outstanding, and should provide a higher-yielding option for investors looking for SGD-denominated bank debt".

DBS's 4.7 per cent perpetual bonds currently yield 3.96 per cent and OCBC's 3.8 per cent perpetual bonds are at 3.83 per cent.

UOB has two perpetual bonds outstanding; the 4.75 per cent and 4.9 per cent, yielding 4.06 per cent and 3.94 per cent respectively.

Julius Baer Group Ltd is Switzerland's third-largest asset manager. Asia is the private bank's second home market with about a quarter of its assets under management from the region.

On Tuesday, the bank said that assets under management rose 2 per cent in the first 10 months of 2015 to 297 billion Swiss francs (S$420.2 billion), up six billion francs since the end of 2014.