Singapore Bond Bankers Vie for Deals as OCBC Closes Gap on Leader DBS
OCBC is closing the gap on top-ranked Singapore dollar bond arranger DBS, trailing by the narrowest margin on record last quarter.
OCBC helped issue S$1.56 billion ($1.2 billion) of offerings at home in the three months to March 31, boosting its market share to 32.4 percent, more than triple a year earlier, according to data compiled by Bloomberg. DBS worked on $1.62 billion of deals for a 33.6 percent market share. OCBC was the sole manager on two issues for SingTel this year while DBS was on all three of its previous local- currency deals.
Singapore’s two largest lenders are vying for a smaller pool of profits, which has pushed them to expand overseas and into investment banking. New rules that require banks to reduce risky holdings, coupled with deposit rates less than 0.5 percent in the island nation, have prompted companies to sell more bonds in the local currency in the past five years than in the previous decade.
“Domestic growth opportunities are limited for the Singapore banks because the market is already mature,” said Elaine Koh, a director in Fitch Ratings’ financial institutions team in Singapore. “It’s a competitive environment with tight lending margins.”
Market share
OCBC helped arrange 19 bond offerings last quarter, Bloomberg-compiled data show. UOB ranked third with an 8 percent market share, followed by HSBC at 7.3 percent and ANZ at 6.2 percent. Issues OCBC worked on included City Developments’ S$125 million of 3 percent 2020 notes and SingTel’s two sales totaling S$300 million.
City Developments’ bonds, sold at 100 percent of par, are trading at 100.25 percent, according to prices compiled by Bloomberg.
“An early Swedish mentor of mine often told me you’re only as good as your last deal, and this was something I brought with me to OCBC,” said Pee Beng Kiong, the bank’s bond syndicate head. “The team here spends some time to celebrate wins to foster greater camaraderie but we always make sure we’re looking for the next opportunity.”
For full-year periods, DBS has led the Singapore dollar bond league tables every year since 2004 except 2008, when OCBC ranked number one, Bloomberg-compiled data show.
It’s been a “slower start to the year for the Singapore dollar bond market because of the volatility going into 2015,” said Clifford Lee, head of debt capital markets at DBS. “New deals have been smaller and less frequent, but we can see the momentum improving.”
Bond fees
Deal volumes totaled S$4.83 billion versus S$3.6 billion in the last quarter of 2014, Bloomberg-compiled data show. Volumes last year were S$24.34 billion and S$19.82 billion in 2013.
DBS expects private banks to remain an active part of the investor base in Singapore and reckons new deals will come from a diverse range of companies, according to Lee.
“We have to toggle between high yield and high grade issues to fit investors’ differing preferences as the market continues to stabilize,” he said.
Lenders in Singapore also have to earn more fees such as those paid in bond transactions to increase profits because deposit growth has slowed, Fitch’s Koh said.
Buying spree
To increase earnings outside of its traditional business, DBS completed a string of acquisitions from 1999 to 2004 through which it added insurance and brokerage businesses as well as subsidiaries in Hong Kong and the Philippines.
OCBC has had a buying spree on its own that picked up with the acquisition of insurer Great Eastern in 2004 and culminated last year with the purchase of Wing Hang Bank for $5 billion, the largest takeover of a Hong Kong financial institution since DBS offered $5.4 billion for Dao Heng Bank in 2001.
“Another challenge the banks face is the slowing deposit growth in Singapore,” Koh said. “With the low deposit rates here, many would prefer to invest their cash rather than hold deposits with the bank. So even if the banks were to grow lending very quickly, how would they fund it? The focus has to shift from volume growth alone to more fee income.”
DBS in February reported investment banking fees increased 27 percent in 2014 to S$243 million as a result of more debt capital markets activity. OCBC reported an operating profit from investment banking of S$1.98 billion for 2014, up 10 percent on 2013.
“We’re a local bank, Singapore is our home market,” said Tan Kee Phong, OCBC’s head of capital markets. “We have to know it well and do well here.”
Bloomberg
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