DBS priced Singapore’s long-awaited inaugural covered bond yesterday (Wednesday), attracting $1.37bn of orders for a $1bn three year at 37bp, and an official at the issuer said the deal had secured cost-effective diversification of funding despite a challenging market.

The debut issue followed the completion of amendments to Singapore’s covered bond framework on 4 June. The possibility of covered bond issuance from the jurisdiction had been flagged several years before the framework was put in place, on the last day of 2013.

“This deal has been a long time coming,” said Colin Chen, managing director and head, structured debt solutions, at DBS.

“It’s not a trivial exercise internally for a bank to tap this market as there are so many mechanics involved from setting up the required infrastructure to ensuring regulatory requirements are met.”

Prior to the deal DBS also held a roadshow across Asia, Europe and the US, which ended on 3 July, and sought and obtained the ECBC Covered Bond Label for its debut $10bn programme, becoming the first non-European Economic Area issue to do so.

“We are thus very pleased with the strong interest received from global investors in our first covered bond issuance,” Chen said. “The deal was 1.37 times subscribed, and this allowed us to price a benchmark $1bn at tight spreads even under current difficult bond market conditions.”

The 144A $1bn (Eu905m, SGD1.36bn) three year issue – managed by global coordinators Deutsche Bank, DBS, JP Morgan and SG and book runners Barclays and Citi – was launched with initial price thoughts of 40bp over mid-swaps upon the opening of the Asian market yesterday.

Order books were in excess of $600m when markets opened in Europe, and had reached $1bn by US opening. Guidance was then set at 37bp the number, before books closed at $1.37bn.

Syndicate officials at and away from the global coordinators said fair value was difficult to establish for an inaugural issue, but noted the deal had come 7bp back of recent comparable trades from Canadian and Australian issuers.

“This was a great outcome in terms of pricing and demand, and feedback from the investor base has been positive,” said Chen.

In particular Chen cited as a positive that the issuer had been able to reach new accounts in a cost effective manner.

“For DBS, we have been able to engage a fresh group of very high quality AAA investors who do not buy bank senior debt and this has allowed us to diversify our funding sources,” he said.

He said the final spread of 37bp was well inside those offered by new US dollar senior unsecured issues by bank issuers of similar rating to DBS, noting that a large Canadian bank had raised three year senior funding at 61bp over mid-swaps (T+83bp) – 24bp wider than DBS’s new issue.

“The covered bond programme has also opened conversations with a fresh segment of investors who are now engaging with us across the capital structure, all the way down to Tier 1,” Chen added. “So the programme has really benefited our entire investor conversation.”

Accounts from Asia took 51% of the deal, Europe 30%, and the US 19%.

“From a debt market standpoint, we see covered bonds in Singapore as a useful new asset class, fulfilling requirements for investors as well as issuers,” Chen added.

In particular, he said, bank treasuries are interested in covered bonds as they can qualify as high quality liquid assets under Basel’s liquidity coverage ratio requirements.

Banks were allocated 62% of the deal, fund managers 19%, central banks 9%, supranationals 8%, corporates 1% and private banks 1%.

“As the largest bank in Singapore and a leading bank in Asia, we are proud to have taken the lead in opening this market,” he said.

“We think our deal makes the Singapore covered bond market real, and paves the way for greater participation in the future by investors and issuers in this new asset class.”

Chen added that he was confident that harmonisation efforts already underway amongst Singaporean banks will help make covered bonds even more popular with investors.

“There is in fact a lot for investors to look forward to from all of us going forward.”