United Overseas Bank (UOB) printed the largest Singaporean euro benchmark covered bond and first from the jurisdiction in over two years today (Tuesday), a €1bn seven year inside fair value, and bankers said the result reflected strong demand for the rare, non-Eurozone paper and its credit strength.

After announcing the mandate yesterday (Monday), UOB leads HSBC, SG, UBS and UOB went out with guidance of the mid-swaps plus 22bp area for a seven year euro benchmark-sized transaction. After around 40 minutes, books were reported as being over €1bn, and after around two hours, the spread was set at 17bp on the back of over €2.1bn of orders. The issue was ultimately sized at €1bn, with a final book of over €2.1bn of 85 accounts.

At €1bn (SGD1.59bn), the new issue is UOB’s largest covered bond in any currency, and the largest Singaporean euro benchmark, topping a €750m seven year from DBS in 2017.

The €2.1bn-plus order book is also the biggest for a Singaporean covered bond, and a syndicate banker away from the leads said this was particularly impressive when compared to the circa €1bn books generated for €500m trades when the jurisdiction was more active two years ago.

“It demonstrates the breadth of liquidity in the euro market,” he said, “but also the desire for folks to gain exposure to non-European jurisdictions.”

Singapore’s strong response to the coronavirus – the country has of today reported just 28 deaths – bodes well for a strong bounce-back of its economy in 2021, according to the syndicate banker, offsetting some technical negatives transactions from the region face, such as CBPP3 and repo-ineligibility.

“It appears investors feel like something with a double-digit spread is sufficient compensation for that,” he added, “with the ability to gain exposure to assets in a geography like Singapore clearly worth something for them as well.”

Syndicate bankers away from the leads saw the pricing of the seven year at 17bp as inside fair value, with one citing its January 2025s at 18bp over mid-swaps.

He said that while 17bp for a seven year deal may therefore look rich, the deal probably represents one of the last opportunities this year for investors to pick up covered bonds in the primary market.

“Unless you are confined to core Eurozone paper,” he added, “why not buy a bond from a strong economy at plus 17bp while core European paper in seven year would probably give no more than plus 1bp or 2bp at best?”

A lead banker put fair value at 17bp, but acknowledged that, with UOB’s curve illiquid, this was open to interpretation. He said the scarcity of the issuer and the region helped draw the high level of demand.

“This reflects that there’s a lot of investors who want exposure to the region and haven’t been able to get it, as we haven’t seen anything out of Australia this year either,” he added.

“UOB is also a fantastically strong credit, and one that offers diversification versus what we typically see in the euro covered bond market.”

The deal yielded minus 0.210%, he said, representing the first negative-yielding covered bond from Singapore, and also the deepest negative yield of any Asia-Pacific new covered bond issue.

The recent Monetary Authority of Singapore (MAS) decision to raise covered bond encumbrance limit for Singaporean issuers from 4% to 10% had not influenced the timing of UOB’s transaction, according to another lead banker, who said the “savvy borrower” had been monitoring market conditions closely.

“They have some upcoming redemptions, and they found the pricing attractive,” he said. “UOB have always said they want to maintain an active presence in the euro market and have consistently engaged with accounts over the years, and today this has clearly paid off.”

Lee Wai Fai, group CFO, UOB, said the bank is committed to regular investor engagement and maintaining a presence in the euro covered bond market.

“We were the first Singapore bank to bring euro-denominated Singapore covered bonds to investors in 2016 and now, we are proud to bring them back to the market,” he said. “We thank our euro investors for their continued support and confidence in UOB’s strong balance sheet position and robust business fundamentals.”