NEW ISSUE: DBS GROUP HOLDINGS SGD 12NC7 TIER 2 NOTES

So with global macro conditions stabilizing a bit, we have our first notable S$ issue of the year:

***NEW ISSUE: DBS GROUP HOLDINGS SGD 12NC7 TIER 2 NOTES***

ISSUER: DBS Group Holdings Ltd
INSTRUMENT: Basel III compliant SGD Tier 2 Capital Securities
RANKING: Subordinated
ISSUER RATINGS: Aa2, stable by Moody’s / AA-, stable by Fitch
EXPECTED ISSUE RATINGS: A2 by Moody’s / A+ by Fitch
FORMAT: Regulation S, S274/S275 of SFA, issued off Issuer’s USD30bn Global Medium Term Note Programme
ISSUE SIZE: TBD
TENOR: 12 non-call 7 years
INITIAL PRICE GUIDANCE: High 3s
SETTLEMENT DATE: [ ] January 2016
FIRST CALL DATE: [ ] January 2023
MATURITY DATE: [ ] January 2028
COUPON RESET: Reset to a fixed rate equal to the prevailing 5-year SGD Swap Offer Rate on the first call date plus the initial spread over the 7-year SGD Swap Offer Rate at the point of pricing
REDEMPTION DATES: Callable from [ ] January 2023, and each interest payment date thereafter (subject to the approval of MAS)
OTHER REDEMPTION EVENTS: Change of Qualification Event, Taxation reasons
TRIGGER EVENT: Earlier of (i) the MAS notifying the Issuer in writing that a write-off is necessary, without which the Issuer would become non-viable; and (ii) a decision by MAS to make a public sector injection of capital, or equivalent support, without which the Issuer would have become non-viable, as determined by MAS
LOSS ABSORPTION: Write-off
VARIATION: Applicable
PAYMENT: Semi-annual, Act/365 (fixed)
MINIMUM DENOMS: S$250k
CLEARING: CDP
LISTING: SGX-ST
SOLE BOOKRUNNER: DBS
CO-MANAGERS: [ ]
TIMING: As early as today’s business

**Comps:
DBSSP 3.3 2022 NC 2017 (Aa3/A+/A+) – 101.00, 2.35%
DBSSP 3.1 2023 NC 2018 (Aa3/A+/A+) – 100.90, 2.64%
UOBSP 3.5 2026 NC 2020 (A2/BBB/A+) – 101.35, 3.17%

This is a standard Basel III – compliant Tier 2 structure where write downs are PONV (Point of Non-Viability) and regulator driven rather than a hard Capital ratio trigger as is common for the European COCOs.

How does the initial price guidance of high 3% look? Assuming a coupon of 3.75% (or credit spread of +105 bps over swaps), it looks about fair considering the UOB 2026 callable 2020 bond (which has a similar structure) is bid at around a spread of +74bps. A 30bp pick up in credit spread for a 3-year extension looks reasonable, though it may not excite yield-hungry investors. Having said that, in the current environment where risk aversion is still pretty much prevalent among investors, a solidly rated household name like DBS should still attract a “safe haven” bid, particularly from institutional investors.