EURO denominated Covered Bonds hit the Asian Financial Market

EURO denominated Covered Bonds hit the Asian Financial Market


Followed by the announcement of Singapore’s first covered bond programme by DBS bank[1] in the summer of 2015, United Overseas Bank, a major Singaporean bank went ahead and launched US$8 billion Global Covered Bond Programme[2] on 23 November 2015 with an objective to diversify the funding requirements of the banks.  On March 3, 2016[3], the first issuance under the programme took place in the form of euro-denominated fixed-rate covered bonds wherein the instrument was successful in raising EUR 500 million.  

Not only was this the first issuance under the programme but also the first ever issuance of euro-denominated covered bonds by a bank in Asia. Also the bank is globally the first issuer to put in place the Harmonised Transparency Template, a new system introduced by the Covered Bond Label Foundation[4], wherein the investors are able to compare the cover assets across various covered bond jurisdictions.

Pertinent to note is that the issuance was successful in attracting such a vast investor base despite the current instability prevalent in the global financial markets. The aforesaid successful issuance of covered bonds with more in the pipeline is a sign of how these products are gaining traction in the Asian markets. Prior to this issuance, Kookmin a South Korean bank issued the country’s first and Asia’s 3rd covered bond program[5] in October, 2015. South East Asian countries are the forerunners in promoting covered bond issuances in the region. Also, according to an analysis of Standard & Poor's Ratings Services[6], other banks/ issuers may also look to issuance of covered bonds as the same can be a resilient source of funding in time of tight credit conditions currently faced by banks.

The issuance of bonds in euro-denomination was done with an aim to tap the vast covered bond investor base in the European market, a market where covered bonds have existed for more than 200 years, by providing them with an opportunity to diversify their portfolio with investments in instruments based out of Singapore. Not only was the mission accomplished with the bond attracting more than 75 institutional investors from Europe, the issuance also witnessed an overwhelming investor demand wherein the transaction’s order book went up to more than EUR1.3 billion.

These euro-denominated fixed-rate covered bonds bear a fixed coupon of 0.25 per cent per annum payable annually in arrears. Payments of such interest and the principal component of the bonds are guaranteed by Glacier Eighty Pte. Ltd, a limited liability company incorporated in Singapore, which in turn is secured by a portfolio of quality mortgage loans associated with the residential properties in Singapore. Also it is expected that the instrument is likely to receive top ratings this week from both Standard & Poor’s, and Moody’ BNP Paribas and UOB are the Joint Arrangers of the programme.

Reported by – Surbhi Jaiswal

Date: March 8, 2016