Strong demand for DBS US$ bond deal and two other issues
Singapore
IT was a busy Tuesday for the Asian US dollar bond market. Besides the DBS USD Additional Tier 1 Perpetual bond deal, two Chinese issuers also tapped the market and orders for the three exceeded a combined US$16.55 billion.
DBS's USD Additional Tier 1 deal received orders of over US$8 billion, which brought the pricing lower to 3.6 per cent. The initial guidance was around 4 per cent. Issue size is US$750 million.
"DBS's strong credit profile and name recognition, together with fixed income investors search for yield, helped to deliver a final order book of over US$8 billion, an excellent response," said Sean Henderson, HSBC deputy head of debt capital markets, Asia Pacific.
This allowed DBS to price at just 3.6 per cent, a record low in USD Tier 1, said Mr Henderson.
The other issuers - Chongqing Western Modern Logistics Industrial Zone and Road King Infrastructure - also enjoyed lower pricing due to strong demand; both were selling USD five-year bonds.
Chongqing Western Modern Logistics Industrial Zone received orders of over US$3.8 billion and the issue size will not exceed US$500 million. The final price guidance was T5 plus 220 basis points, down from the initial T5 plus 250 basis points. T5 is currently at 1.198 per cent.
Orders for Road King Infrastructure were over US$4.75 billion and issue size is capped at US$500 million. Final price guidance was 4.7-4.75 per cent, down from an initial 5 per cent.
Three benchmark deals in one day is not a daily affair but not uncommon either, said Clifford Lee, DBS Bank head of fixed income. He said that two weeks back, there were seven deals in one day.
Investors are broad-based and spread across Asia, said Mr Lee.
"The investor types are quite broad-based - asset managers, hedge funds, insurance companies, sovereign wealth funds and private banks."
The strong demand, said Mr Lee, is because "in a nutshell, the market continues to be long in cash and hence still under-invested, and the interest rate outlook remains subdued with any rate increase being a token move at best".
Last Friday, the US Federal Reserve raised the odds of an interest rate hike soon, with some betting that it may happen as early as next month. Often, bond markets wobble at the idea of higher interest rates.
"All in all, the Asian USD bond market sentiments are very conducive now," said Mr Lee.
Year to date, the Asia ex-Japan G-3 (USD, euro and yen) market is worth US$119 billion, not including Tuesday's deals. Year to date 2015, it was US$130 billion. Full-year 2015 saw US$174 billion worth of bond sales.
Mr Lee said that 2016 got off to a slow start because Chinese issuers were held back by devaluation concerns. In previous years, China accounted for about 60 per cent of the Asian USD bond market.
Chinese issuers - because of devaluation fears - went onshore earlier this year, but the authorities realised that for Chinese borrowers who need USD, they would then sell yuan, increasing the risk of downside pressure on the Chinese currency, he said.
"So we see them returning to the offshore market and approvals have been forthcoming."
