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DBS making waves in Asia's bond markets

But it says S'pore remains its most important market though this is being challenged

One of the things to be mindful of when you grow across Asia is sustainable growth, says Mr Lee.


THAT DBS Bank is the leader in Singapore's fixed-income market seems natural given its dominant position at home; what's less known is that it is making waves in the much bigger US dollar and renminbi debt markets as well.

In 2014, DBS's involvement in Asian bond issuance - in G3 currencies (US dollar, euro and yen), offshore renminbi (RMB) and Singapore dollar - totalled US$41.2 billion from 196 issues. That's almost double the US$22.8 billion it helped raise in 2013. Year to April 21, it's done 59 deals worth US$18.8 billion.

"Arguably we're the only Asian bank operating across Asia with Asian insights and world-class execution standards," declared Clifford Lee, DBS Bank head of fixed income.

A geographical breakdown by issuer of the 2014 deals showed that China-related firms accounted for the majority or 55.8 per cent worth US$23 billion. Singapore-based issuers were next with 24.3 per cent valued at US$10 billion and Hong Kong third at 14.6 per cent worth US$6 billion.

The reason China, the world's second-largest economy, makes up a majority is due to the country's sheer economic size, said Mr Lee in a recent interview. China embarked on its ambitious currency liberalisation programme in 2011 and that freed up companies to issue debt offshore, which in turn provided rich pickings for banks' fixed-income business.

DBS has been quick to seize on the offshore RMB opportunities from that development. Last year, DBS ranked fourth in offshore RMB bond issuance, with 6 per cent market share handling 77 deals worth RMB25.7 billion (S$5.52 billion). In 2011, DBS ranked 14th with 1.9 per cent market share. "It was very interesting to us because everybody starts from scratch - no incumbents," said Mr Lee.

He was referring to the incumbents in Asia's largest bond market, which is the G3 market and those are the global US and European banks.

DBS in 2014 ranked 16th in Asian G3 bond issuance. Even though DBS is a small bank in Hong Kong - the world's largest offshore RMB centre - it is punching above its weight due to its proven execution capability, he said. "We're not (big) in Hong Kong, we don't have as much RMB deposits, notwithstanding, our execution capability is well-known."

Over the past 10 years or so, DBS has honed its fixed-income expertise first at home in the SGD market and later in the USD space. DBS is also a major player in the Indonesian rupiah bond market. Last year, it ranked fourth with 9.2 per cent market share. DBS handled 32 issues worth 4.4 trillion Indonesian rupiah (S$453 million). It's IDR (Indonesian rupiah) ranking has not been consistent - it was 16th in 2013 and 10th in 2012. Mr Lee said that's due to varying demand for USD by Indonesian firms - many of which are commodity exporters.

Indonesian companies can issue local bonds and then swap into USD and this is where DBS's strength of helping clients swap into different currencies comes in. "The market (in 2014) was very swap-driven," he said.

DBS's strong balance sheet also helps it grab market share.

The bank can offer issuers loans or a combination of debt/loans, when those are better options, he noted. "Unlike investment banks, we've no lending restrictions."

DBS has also been able to attract clients from some Asian banks which may have lending relationships with clients for decades but lacks fixed-income capability, he said.

DBS's 50 strong full-service fixed-income team handles origination of deals, transaction management which is about documentation and deal structuring, rating advisory and syndication or wholesaling to other banks. It also includes a sales desk, credit traders and a research team.

For all its progress into larger markets, Singapore remains DBS's most important market though this is being challenged. "First and foremost, Singapore is our biggest market (by market share)," said Mr Lee.

Every year from 2009 to 2014, DBS has been the SGD bond market leader with a share ranging from 25.8 per cent to 35 per cent.

Singapore is critical to DBS because it is also where it helped developed the bond market, working closely with the regulator, he said.

Mr Lee joined DBS in 2004, tasked to build a regional fixed-income business for the bank.

Some achievements include getting the market to accept longer tenures and larger deal sizes, as well as the first corporate perpetuals, a hybrid bond with no fixed tenure. The biggest non-bank issue ever sold was Genting's S$1.8 billion 5.125 per cent perpetual deal in March 2012.

DBS also handled the longest SGD bond - Temasek Holdings' S$1 billion 40-year 4.2 per cent issue in 2010.

The rapid development of Asia's bond markets is causing worry that in a market event investors might be unable to exit a bond without suffering huge losses. "I suppose most, if not all, financial instruments have this risk," said Mr Lee.

"Bonds as an asset class in Asia is still developing, so liquidity would naturally be a key concern," he said. "Market making support is better than what it was several years back but it still has room to grow. As such, bond investors should ideally have a medium to long-term hold appetite."

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