The growth of the Singaporean covered bond market on the back of repeat issuance and the establishment of a solid investor base support the refinancing of covered bonds in the event of an issuer default, according to Moody’s, prompting the rating agency to lower the refinancing margin it assumes in its analysis.

In a report published yesterday (Tuesday) and following a review of the Singaporean covered bond market, Moody’s recognised the development of the market, following its inauguration by a $1bn three year issue for DBS Bank in July 2015.

“Although Singapore’s covered bond market is relatively young, many of the positive attributes it has to support refinancing in the event of an issuer default are similar to those of more established covered bond markets,” said Joe Wong, senior analyst at Moody’s. “The market has seen periodic issuance since the first deal was launched in 2015 and has an established base of investors.

“These features make it more likely for the cover pool to be acquired at a long term break-even price when it needs to be sold to refinance maturing covered bonds.”

Wong added that refinancing is supported by the legal and contractual framework for Singaporean covered bonds and by the quality of the cover pool assets.

As a result of the lower margin, the minimum overcollateralisation that Moody’s deems consistent for a Aaa covered bond rating has also declined.

The OC deemed consistent for the Aaa covered bond rating of DBS Bank has declined from 5% to 0%, while the Aaa OC for the covered bonds of United Overseas Bank (UOB) and Oversea-Chinese Banking Corp (OCBC) has declined from 5% to 1%.

Moody’s Timely Payment Indicator (TPI) for Singaporean covered bonds remains at “improbable”, and the TPI leeway remains at three notches for all Singaporean programmes.