SGD New Issue Review : HDB 5Y 2.223% vs Deutsche Bank EUR/USD/GBP AT1


ISSUER:  Housing and Development Board
RATING: Unrated
FORMAT: S274 & 275 and Reg S Bearer, Fixed Rate Notes (off Issuer’s  S$22bn Multi-currency MTN Programme)
STATUS: Fixed Rate, Senior Unsecured
ISSUE SIZE: SGD600MM (with option to upsize)
TENOR: 5 Years
MATURITY DATE:    28 May 2019
COUPON DATES:     28 May and 28 November (First Pay: 28 November 2014)
ISSUE PRICE:      100.00
COUPON: 2.223% s/a, ACT/ACT, Following Business Day Convention, 58 bps above 5yr SOR
DETAILS:  S$250k x S$250k / MTN Prog / SGX-ST / Singapore Law

0.58% for 5 years is not cheap compared to their previous 2 issues which came abnormally rich by HDB standards.

Let me re count the previous HDB’s done since 2013.

5 YEARS 30-Jan-13 30-Jan-18 1.23 0.34% 97.69 1.88
3 YEARS 21-Mar-13 21-Mar-16 0.943 0.37% 99.86 1.02
5 YEARS 29-May-13 29-May-18 1.368 0.42% 97.9 1.91
3 YEARS 26-Jul-13 26-Jul-16 1.165 0.30% 100 1.165
5 YEARS 19-Sep-13 19-Sep-18 2.365 0.59% 101.33 2.04
4 YEARS 13-Nov-13 13-Nov-17 1.875 0.75% 100.61 1.69
15 YEARS 29-Jan-14 29-Jan-29 3.948 0.84% 103.12 3.67
7 YEARS 26-Mar-14 26-Mar-21 3.008 0.74% 101.81 2.72


The cheapest HDB would be the 4 year HDB done in Nov 2013 which came at a premium of 0.75%.

My comments then :

The closest comparable HDB is the HDB 1.52% 06/2019 which is going at a yield of 2.19% today which is still a bargain compared to the Singapore Government 5 year bond which matures in 06/2019 and yielding 1.32%.

I am highlighting this to readers because HDB has a leverage ratio of 80%, if I am not mistaken, and it is possible to make money investing in HDB bonds. Note that if you had bought the 15 year HDB earlier this year, you be sitting on profits of over 3% already, just in capital gains.

HDB is a good safe haven play which is something of an anomaly because its credit premium has been widening when junk is at its tightest.

Take a look at the chart of the high yield spread index.

CDX HIGH YIELD SPREAD GRAPH We are at risky levels without much buffer left.

Note that your bankers will not be actively selling this paper to you because there is no private bank rebate for this one although I am hearing that HDB is generous with her fees these days and that 4 year deal last year was a mighty windfall for the banks.

Good luck.

Deutsche Bank AT1

Issuer: Deutsche Bank AG

Instruments: Perpetual Non-cumulative AT1 Notes of 2014

Status: Unsecured, subordinated, ranking junior to senior and Tier 2, pari passu with claims under support agreements and subordinated guarantees for legacy Tier 1 Trust Preferred Securities

Senior Ratings: A2 / A / A+ (Mdy/S&P/FI, NegW/Neg/Neg)

Instrument Ratings: Ba3 / BB / BB+ (all expected)

Issue Size: Approximately EUR 3bn equivalent in aggregate

Tranche: USD PerpNC6 | EUR PerpNC8 | GBP PerpNC12

Tranche Size: tbd | tbd | tbd

Price Guidance: 6.625% | 6.375% | 7.5%

Denominations: USD 200K+200K | EUR 100K+100K | GBP 100K+100K

First Call Date: 30 April 2020 | 30 April 2022 | 30 April 2026 and every 5 years thereafter, only if fully written up, subject to regulatory approval

Issue Date: 27 May 2014

Maturity Date: None (Perpetual)

Interest: Fixed rate interest, payable annually in arrear on 30  April (short first), reset at the First Call Date and every  5 years thereafter at the relevant 5-year swap rate plus initial credit spread. Payments are fully discretionary, non-cumulative. Mandatory cancellation if and to the extent that (i) Interest Payment is not covered by (x) sum of Available Distributable Items of the Bank on a non-consolidated basis plus (y) interest expense in respect of Tier 1 Instruments for preceding fiscal year, minus (z) preceding payments on Tier 1 Instruments in current fiscal year; or (ii) distribution prohibited by order of competent authority or applicable law

Early redemption: At any time in case of regulatory reasons or tax reasons subject to regulatory approval

Write-down/-up: Pro rata with other AT1 Instruments (in whole or part) in case of breach of 5.125% CET1 ratio (transitional) on a consolidated basis; discretionary write-up, subject to limits

Docs/Law/Listing: Stand-alone; German law; Luxembourg Listing

This is the one the PB’s are all excited about and in all your mail boxes.

Yes, this is how the big world out there works. Want $, Pay $. Pay up and be professional about it.  (No comments about local SGD issues)

Well, most of the Coco (Basel 3 loss absorbing) perps are now rated junk, but banks are apparently willing to lend against them.

Been told it is likely to be tighter. UBS and CS Cocos are also cheaper but those banks are in trouble with the US Attorney General.

Are you confident on German law ?

From a cultural perspective, a very good friend suggests that Germans would not hestitate to trigger this Coco in the next crisis just to prove  a point. The French, Italians and Spaniards may be more face saving.

Well, from a value perspective, these are quite fairly valued which is why we will never have them in Singapore. 0.25-0.375% tighter, and I will not feel the same way.

Good luck !