DBS eyes Taiwan, Japan, Europe in hunt for bonds growth

Singapore

DBS Bank's ambition of becoming a fixed income house to match global banks is gaining traction though current challenging financial markets make the strategy tough to execute.

International banks' commitment to Asia has waxed and waned depending on their fortunes but this is not an option for DBS, said Clifford Lee, the bank's head of fixed income.

As Asian investors turn cautious, DBS is redoubling its efforts to attract others from Taiwan, Japan and Europe.

Year-to-date, currency bond issuance for Asia (excluding Japan) in USD, yen and euro (G3) is down by 12.5 per cent to US$141.9 billion, according to Bloomberg data as interest rate uncertainty plus myriad other anxieties dog financial markets.

The Singapore dollar bond market is faring worse, it is down 38 per cent with issuance worth S$8.2 billion. DBS is the Singapore dollar bond leader with 36 per cent market share. Year to date, it has handled 26 deals out of a total of 47.

But it is DBS' growth in the Asia excluding Japan G3 debt market that gets Mr Lee excited.

In 2017, it ranked 10th in the league table with a 3 per cent market share worth US$9.2 billion. Last year's volumes were more than double that of three years ago, and nine times more than 2007.

Amid skittish markets, DBS' fixed income team - some 60 people - plough on, he said.

While the local bond market languishes, DBS has done better in the wider G3 space; it did 54 deals worth US$3.3 billion in first half 2018 driven mainly by executing Greater China USD bonds. DBS was also one of four bookrunners in the US$580 million deal for Star Energy Geothermal, the first Indonesian green bond sold in April this year.

The team is spread over Singapore, Hong Kong, Indonesia, India and Taiwan. It has also expanded with sales people in Tokyo and London. DBS fixed income sales in Tokyo and London cater to investors such as asset managers and pension funds, he said.

In the last few years, growth in investible funds in Asia was able to meet issuers' needs, he said.

"As the market becomes bigger and more mature - and like now where it is choppier - you have to go beyond Asia," he said. Otherwise the deployment of capital is not efficient.

He said foreign issuers like Swiss bank Julius Baer, US' Ford Motor Company and Australia's Telstra sold bonds in Asia because it was cheaper to do so.

The flip side is to have Asian bonds sold outside the region, he said.

Of late, with Asian liquidity and investors increasingly tapped out, continued growth can be sustained by selling to the rest of the world, he said.

DBS is preparing for that by deepening its distribution in Taiwan, Japan and Europe.

"It's starting to show more traction in the current market situation; increasingly we are also known by the investor base there as an Asian bond specialist providing two way liquidity for Asian bonds," he said.

The biggest Asian bond market is China, estimated to be worth US$8-9 trillion and foreigners can invest in them via Bond Connect which was set up in July last year.

DBS is one of seven foreign market makers on Bond Connect. The others are HSBC, Standard Chartered Bank, Citi, BNP Paribas, Deutsche Bank and Bank of Tokyo-Mitsubishi UFJ.

China Development Bank successfully launched its first global offering on Bond Connect last year with a total value of RMB20 billion.

In addition to investors from Hong Kong, the offering also attracted overseas monetary authorities, as well as investors from Europe, Japan and Singapore. DBS was among several banks involved in the offering.

Offshore investors require a lot of education, he noted.

For example, a German issuer of Panda bonds, or RMB bonds, asked DBS to help their European investors get onto Bond Connect, he said.

DBS' strength is its ability to straddle markets and bring foreign investors on board, said Mr Lee.

Chinese issuers use Chinese banks as arrangers, but the latter have little or no engagement with foreign investors, he said.

Foreign banks have access to investors, but their engagement with Asian markets is not as deep as DBS', he said.

The bank's fixed income business began in 2004 when DBS decided to go into the region.

The 2008 Global Financial Crisis gave DBS an opening: that was when many international banks retreated from Asia, providing a window for DBS to build up its business. The GFC also resulted in a US dollar liquidity crunch and local currencies' issues began to take off.

"DBS became more relevant,' he said.