DBS rides Australian dollar tailwinds to best-case scenario on pricing and distribution
A large and diverse orderbook combined with pricing flat to the local major-bank curve added up to the best of possible worlds for DBS Bank Australia Branch’s latest foray into the local market. The issuer says record book volume and the pricing outcome speak to a market that shows no sign of saturation.
DBS Bank Australia priced A$1.25 billion (US$818 million) of three-year notes on 16 February, the deal split into A$900 million floating-rate and A$350 million fixed-rate tranches. It was last active domestically in August last year with a A$1.5 billion covered-bond print.
The new deal is comfortably DBS Bank’s largest senior-unsecured transaction in Australia (see table). At 77 basis points over swap, it priced inside the most recent senior three-year issuance by an Australian big-four bank in the primary market – ANZ Banking Group’s 24 January print, which came to market at 80 basis points over swap – and roughly flat to the major-bank secondary curve. KangaNews understands the DBS deal had tightened by a further 3 basis points on dealer rate sheets by the close on 19 February.
DBS Bank largest Australian dollar deals
| Pricing date | Issuer | Format | Total volume (A$m) | Number of tranches | Tenor (years) |
|---|---|---|---|---|---|
| 4 Aug 23 | DBS Bank Australia Branch | Covered bond | 1,500 | 1 | 4 |
| 16 Feb 24 | DBS Bank Australia Branch | Senior unsecured | 1,250 | 2 | 3 |
| 14 Feb 23 | DBS Bank Australia Branch | Senior unsecured | 1,000 | 2 | 3 |
| 16 Jun 23 | DBS Bank Singapore Branch | Covered bond | 1,000 | 1 | 3 |
| 24 Aug 17 | DBS Bank Singapore Branch | Senior unsecured | 900 | 2 | 3 |
Source: KangaNews 20 February 2024
Chris Ngooi, head of wholesale funding at DBS in Singapore, says this secondary relativity is a best-case scenario for the bank, adding that going any further – inside the major-bank curve – would be “highly aspirational”.
DBS was at least as focused on distribution as pricing. “A good orderbook was a priority, including granularity of distribution – we don’t want to sacrifice this for pricing,” Ngooi confirms.
The start of 2024 has been supportive for financial institution issuance in Australian dollars: the DBS transaction took year-to-date supply past the A$20 billion mark, a figure that includes nearly A$6 billion of deal flow from international banks either through local branches or in Kangaroo format. Even so, Ngooi says competing supply at the time DBS elected to go ahead with its trade was more of a concern than any potential digestion issues.
In the end, DBS encountered relatively clear water for its launch and the book built rapidly as a result. Lead manager data show orders of more than A$3 billion at final pricing, which KangaNews understands may be a record for a Singaporean bank deal in the local market.
Asian investors formed the largest group in the deal book though the split between this bid and Australasian accounts was relatively even (see chart 1). Banks dominated the larger floating-rate note tranche, with real-money investors more prominent in the fixed-rate bonds (see chart 2).
Source: ANZ 20 February 2024
Source: ANZ 20 February 2024
The domestic and offshore bid followed a pattern in the DBS deal that has become common in Australian dollar transactions. Ngooi reveals that Asian investors provided momentum via positive responses during IOIs on 15 February – despite some jurisdictions not having finished their lunar new year holidays – with Australian investors typically following with bids post-launch the following day.
“Over time, we would like to see this slight divergence in behaviour between Asian and Australian investors converge,” Ngooi says. “But the regionalisation of the Australian dollar market is a very positive development – and one we hope is here to stay.”
Tailwinds for Asian demand for Australian dollar product remain in place at present. Ngooi highlights higher Australian rates and lack of alternative supply in the region – in particular US dollar issuance by Asian borrowers – as reasons for regional investors to seek out and favour Australian product. But he also expresses a note of caution, noting that the regional bid has not always been as strong.
Enhanced Australian dollar capacity will certainly be helpful for DBS, given growth in its local balance sheet. “The main reason why we are issuing more in the Australian market is to support domestic balance sheet growth and to diversify our funding sources, and prudent liquidity management,” Ngooi explains. “The latest deal replaces maturities coming this year so any further issuance is likely to be driven by the balance sheet outlook.”
The bank is open to covered-bond and senior transactions in Australia, though Ngooi reveals that further tier-two supply is “very unlikely” at present. DBS has issued subordinated bonds twice in Australia, both at group level, in 2018 and 2020.
