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