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HDB sells jumbo S$1.2 billion 5-year bond

THE Housing and Development Board (HDB) sold a jumbo S$1.2 billion five-year bond on Tuesday, upsized 50 per cent from an initial S$800 million due to strong demand.

It was HDB's first issue after getting the 'AAA' rating by credit rating agency Moody's - its highest rating - two weeks ago.

The coupon offered for the bonds was 2.10 per cent, lower than two bond deals sold last year, reflecting HDB's triple A rating, said fixed income bankers. The coupons for the May 2014 and September 2014 issuances were 2.223 per cent and 2.288 per cent respectively.

"HDB should be applauded for being the first statutory board to obtain an explicit international rating, and this has allowed it to deepen its investor pool whilst achieving its tightest priced deal, in terms of credit spread since 2010," said Winston Tay, head of Asia bond syndicate at RHB Securities Singapore.

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HDB has joined the ranks of AAA-rated issuers like Temasek and supranationals like the Asian Development Board in accessing the Sing-dollar bond market, he said.

"This new issuance was timed to perfection given the recent inflows of funds to safe-haven assets due to the ongoing market volatility and the scarcity of highly rated issuers," said Mr Tay.

DBS Bank, OCBC Bank and RHB Securities handled the bond sale.

The lower pricing is an "interesting phenomenon", said Clifford Lee, DBS head of fixed income, referring to HDB's statutory board status.

"It's the same risk but gives you 32.4 points more - good value when compared to the Singapore Government Securities (SGS) five-year tenure," said Mr Lee.

SGS five-year bonds on Tuesday were quoted at 1.776 per cent.

HDB's triple A rating means banks now can buy the bonds for their liquidity requirements as well as certain funds which have restrictive investment mandates, said Mr Lee.

Under the Singapore Banking Act, HDB's bonds can now qualify as "Level 1 High Quality Liquid Assets", which do not require a haircut under the calculation of the Liquidity Coverage Ratio (LCR), said Terence Lin, iFAST regional research manager - bonds & portfolio management.

Previously, the lack of a credit rating meant banks were required to employ a 15 per cent haircut on HDB bonds in the LCR calculation, he said.

The level 1 qualification effectively means that investors, particularly the bank asset liquidity management desks, are incentivised to consider increasing their appetite for such issuances, while minimising any issues like single-name limits, added RHB's Mr Tay.

"From a liquidity coverage ratio perspective, Singapore financial institutions should now be indifferent about holding SGS or HDB bonds, and with HDB bonds still offering a slight spread over comparable maturity SGS, it thus makes sense to trade up to the marginally higher yields on HDB bonds," said Mr Lin.

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