SGD New Issue Review : HDB 5Y 2.223% vs Deutsche Bank EUR/USD/GBP AT1
NEW ISSUE – HOUSING DEVELOPMENT BOARD 5Y SGD @ 2.223%
ISSUER: Housing and Development Board
RATING: Unrated
SERIES: 59
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
SETTLEMENT DATE: 28 May 2014
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
CLEARING: CDP
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.
| TENOR | ISSUE DATE | MATURITY | COUPON | PREMIUM | LAST PX | YIELD |
| 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 : https://tradehaven.net/market/sgd-rates-and-bonds-weekly-and-new-issue-hdb-adjusts-our-risk-free-rate/
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.
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 $. Pay up and be professional about it. (No comments about local SGD issues)
Well, most of the Coco (Basel 3 loss absorbing) perps are now rated junk, but banks are apparently willing to lend against them.
Been told it is likely to be tighter. UBS and CS Cocos are also cheaper but those banks are in trouble with the US Attorney General.
Are you confident on German law ?
From a cultural perspective, a very good friend suggests that Germans would not hestitate to trigger this Coco in the next crisis just to prove a point. The French, Italians and Spaniards may be more face saving.
Well, from a value perspective, these are quite fairly valued which is why we will never have them in Singapore. 0.25-0.375% tighter, and I will not feel the same way.
Good luck !
Hello again TH,
Yes, my friendly RM was chasing me on today’s Deutsche perpetual offering, and – bless him – he was clearly incentivized. Phone call & an email. And yes …. “this could close as soon as soon as Europe opens?” Really?!
I had a look through the outline prospectus and I’m having a go at the US$ piece. Decent risk vs. reward in my book. But my RM has told me that the books are already 3 times over-subscribed (US$ 10 Bln?? – for a perpetual note with all those caveats?!) …… so I’ll need a bit of luck to get even one lot.
One idiosyncrasy of this note – it only pays out once a year, rather than semi-annually. Not sure how common that is.
Your new site is excellent TH.
Aha.
You cannot really quantify that RISK in the risk reward yet because Cocos has yet to be tested so you do not really know what the real risk is.
The coupon frequency works slightly in their favour in computing yield but I would not be too worried about that.
Chasing Deutsche is easy on the brainwork because we assume that Germany would be last to go in the EU ladder. I am very worried that we are viewing banks in terms of Sovereign risk now when shareholders are private.
Good luck and thanks for the site feedback. It is still temporary though.
Hi TH,
Do you view this Deutsche bonds as a Good buy? Though it is a perp, there is a reset of coupon after 6 years. What is your take?
Regards
Km
Just read the following Reuters wire report ………..
I find the size of the books staggering. If I can get a lot of the US$ paper – I presume this will be decided by ballot – I will be pleased with a 6.1/4% p.a. coupon.
LONDON, May 20 (IFR) – Deutsche Bank has fixed the final terms on its triple-tranche Additional Tier 1 bond having attracted orders in excess of 25bn-equivalent, according to a lead manager.
Germany’s largest bank will price a 1.75bn perpetual non-call eight-year at 6%, a US$1.25bn perpetual non-call six-year at 6.25%, and a £650m perpetual non-call 12-year at 7.125%, the tight end of revised guidance set on Tuesday morning.
There are over 1000 orders in the book, according to a source. The transaction will be priced later today.
HDB priced SGD 675 mio at 2.223% so far.
This is smaller than the 1.5 bio HDB 1.875% 11/2013 and the SGD 1.45 bio HDB 2.365% 09/2018.
DB 6.25% USD Perp Ann Cpn USD 1.25 bio Issue Price 100.012
trading 99.85/99.95
DB 7.125% GBP Perp Ann Cpn GBP 650 mio Issue Price 100.016 trading 99.85/100.05
DB 6% EUR Perp Ann Cpn EUR 1.75 bio Issue Price 100.011
trading 99.80/100.00
I am not sure if all readers are aware that loss sharing features kick in before share capital is depleted to enable the bank to continue as a going concern.
Thus for new Coco perps, there is a much closer connection with share price than perps from the old regime.
Fortunately, DB shares are at a 1 year low even if the DAX Index is close to historical highs.
Hi TH,
How does the loss sharing features works? Thanks.
Km
Common Equity Tier 1 (CET1)
Common Equity Tier 1 capital consists of the sum of the following elements:
• Common shares issued by the bank that meet the criteria for classification as common shares for regulatory purposes (or the equivalent for non-joint stock companies);
• Stock surplus (share premium) resulting from the issue of instruments including CET1;
• Retained earnings;
• Accumulated other comprehensive income and other disclosed reserves;
• Common shares issued by consolidated subsidiaries of the bank and held by third parties (i.e., minority interest) that meet the criteria for inclusion in CET1; and
• Regulatory adjustments applied in the calculation of CET1
The perp will fall into CET1. When this ratio falls below 5.125% of total risk weighted assets, then the loss absorption feature will kick in.
The problem with loss absorption is that its not really tested and so its hard to really price them. In good times nobody will remember.
TH,
Thank you again for your updates. I managed to get one lot of the US$ 6.25% paper – don’t ask me how big my application was. My RM told me that their bank clients in total “got much less than 10% of what they applied for”.
Again, when I see that for such a substantially over-subscribed raising that prices in the secondary market are trading below par (for the US$ paper) it does make me wonder what is going on and specifically what are the banks up to.
One positive for me about this – I actually found DB’s Preliminary Prospectus readable and written clearly – the (plain) English that is, not the German (which has precedence)!
I understand that we’ll be seeing quite a few more of these AT1 offerings before the end of the year.
All the best TH
JC8888
It is 100.05/100.15 now.
Big issues like these take time to run up.
Trading below par is common because these bonds are usually hedged with US treasuries and when the US treasuries sell off, the bond price will follow lower.
Plenty more AT1 or equity offerings coming. Onshore in Singapore, I expect OCBC to hit the streets soon.