SINGAPORE - Dutch-owned ABN Amro Bank, in a first, sold $1 billion bonds yesterday amid red-hot demand, passing with flying colours in its maiden public offering to Asian investors.
Strong demand from private bank clients took orders to $17 billion.
Bankers expect other European banks to follow in ABN Amro's footsteps and tap the local debt market as they race to meet higher capital requirements which take effect in January.
Clifford Lee, DBS' head of fixed income, said: "This deal is attractively priced and respectably sized. As such, it should certainly stir up more European banks' issuance interest in the SGD bond market, especially with the implementation of Basel III next year, which would bring about more capital-raising needs."
Basel III refers to the comprehensive set of reforms designed to improve the regulation, supervision and risk-management within the banking sector.
The banks handling the ABN Amro deal were DBS, Standard Chartered Bank and UBS.
The debt, comprising subordinated notes, may qualify as Tier 2 capital for the bank. Issued under ABN Amro's medium-term note programme, the bonds will see proceeds used for general corporate purposes.
The term sheet says the bonds have "a maturity of 10 years, non-callable five years", which means the issuer has a one-time call, or it can redeem the bonds in Year 5, subject to regulatory approval.
The coupon for the deal settled at 4.70 per cent, the lower end of the final price guidance of 4.75 per cent, given the overwhelming demand.
Mr Lee said: "Interest in this issue was strong principally because the market continues to welcome well-rated and familiar names which offer attractive yields at the same time."
Singapore investors took 65 per cent of the issue, followed by the rest of Asia at 31 per cent, and Europe, 4 per cent.
By allocation, private bank clients got 58 per cent, fund managers 31 per cent, banks 5 per cent, insurers 3 per cent, and others 3 per cent.
If the bonds are not redeemed by the issuer after five years, the interest rate will be reset to the prevailing-year Singapore dollar swap offer rate (SOR) plus the initial spread of 379 basis points.
Mr Lee said the deep SGD bond market made it very cost-efficient for the Dutch bank, even after swapping the proceeds to the currency it requires.
He estimates that ABN Amro saved 30 to 40 basis points by tapping the SGD market, compared to its recent US dollar bond issue.
Last month, ABN Amro did a US$1.5 billion Tier 2, 10-year, non-callable five years issue, priced at 6.25 per cent.