THIS month United Overseas Bank (UOB) sold US$500 million subordinated 10-year Tier 2 notes with a coupon of 2.875 per cent, the lowest ever coupon achieved by a bank globally for such debt.
DBS Group Holdings and OCBC Bank have also issued similar bonds this year, with very tight spreads, reflecting the competitive edge Singapore banks enjoy for being among the world's safest banks.
UOB's notes priced at 230 basis points over the prevailing 5-year US Treasury rate was also the tightest spread among transactions completed this year by Singapore banks.
The spread was tightened 15 basis points from an initial guidance of 245 due to the strong demand with orders reaching some US$1.8 billion, said Alexi Chan, HSBC's head of debt origination for Asia.
It's the first time that a subordinated capital instrument for a bank has been priced below 3 per cent, he said.
The issue was handled by UOB, Australia and New Zealand Banking Group and HSBC.
The highly successful issue was a confluence of several factors including exceptional credit conditions and Asian and European investors looking for safe havens in Asia, Mr Chan said.
"Singapore banks are some of the highest rated banks in the world," said Mr Chan.
According to Terence Ong, UOB group head of global markets and investment management, the success of this transaction demonstrates UOB's ability to attract quality investors in Asia and beyond.
"Investors are attracted to our strong regional franchise, solid financials, consistently good asset quality and prudent business management," said Mr Ong.
"Investor demand for fixed income securities issued by highly rated bank issuers like OCBC Bank has been strong, in part due to the limited number of banks globally which are still double-A rated," said Koh Ching Ching, OCBC head of corporate communications.
In response to this demand, OCBC successfully priced US$1 billion of fixed rate subordinated notes in September this year, she said.
In August this year the local banks were named the top three safest banks in Asia for the second year running, according to the latest Global Finance survey.
DBS Bank was ranked first, OCBC Bank second and UOB third - unchanged from their positions last year.
Globally, they occupy positions 13 to 15 on Global Finance's list.
HSBC's Mr Chan said fund managers in the UK and private banks from Switzerland were among the buyers of the UOB notes.
Investors in Asia Pacific took 75 per cent of the notes while Europe had the remaining 25 per cent. By allocation fund managers had 46 per cent, private banks (24 per cent), banks (23 per cent), and insurance companies and public sector entities (7 per cent).
With such favourable conditions, will there be further sales?
Mr Chan said the banks which are very sophisticated issuers will look at which markets are most efficient for them.
"We have in place an ongoing capital management plan to enhance the efficiency of our capital structure and have established a global medium-term note programme to allow us to tap the market opportunistically for capital from time to time," said OCBC's Ms Koh.
"Although we currently have a strong overall capital position, we do not rule out the possibility of issuing bonds which would qualify as Tier 2 capital to further improve the mix of our capital instruments," said Ms Koh.
Kenneth Ng, CIMB head of research, notes that the US dollar is not a natural funding currency for the Singapore banks.
Last year, when there were doubts about European bank funding, there was a USD funding gap in Asia for Asian banks to fill, said Mr Ng.
"Since the Singapore banks are highly rated and there are a lot of takers for their papers, it makes sense to secure USD funding now while it is cheap so that if counterparty fears stoke up again, they will have the USD funding to take advantage of the opportunities," said Mr Ng.