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The 5th Euromoney/ECBC Asian Covered Bond Forum took place in Singapore on 6 February 2018. The conference kicked off with an important announcement from Luca Bertalot, secretary general of the European Mortgage Federation and the European Covered Bond Council, that a new issuer had just joined the covered bond label – PKO. PKO aren’t just new to the label, they are also the first Polish and Eastern European issuer to join, which is an exciting step for the covered bond market.
With that news out in the open, it was next a pleasure to welcome Alan Yeo, director, financial markets development department from the Monetary Authority of Singapore (MAS) who delivered an address to our audience outlining the continued work taking place on MAS’s framework to support the growth of the Singaporean covered bond market. Our final keynote speaker of the morning, Alexandre Gautier, director of market operations at the Banque de France, then delivered a fascinating keynote address on the new frontier in collateral and the role of covered bonds.
The morning continued with the first panel discussion of the day with Singaporean issuers from DBS Bank, OCBC Bank and UOB, and Vincent Bourdarie, Chief Investment Officer, Nomura Asset Management Taiwan addressing the global changes in the covered bond market and the implications this holds for Singapore. After a brief break, the discussions continued with the second panel looking at the rebirth of securitisation and whether it is a complement or an alternative to covered bonds. Interestingly, it was noted that growth is expected in the Chinese securitisation market which is predicted to rival the size of the US market.
In between panels, smaller discussions took place where members of the audience were able to participate and discuss how covered bond technology can be adapted to green objectives, what it will take to make Asian investors buy covered bonds and when will Chinese covered bonds happen?
The sessions continued into the afternoon looking at the fundamental shifts in European covered bonds – including the latest news that the Basle committee has for the first time recognised covered bonds in one of their texts – investing in Asian covered bonds and development in the market, and which countries will come to the market in 2018, including the exciting prospect of Morocco.
The Asian Covered Bond Forum remains a standout event in the Asian and global covered bond market. Euromoney Conferences would like to thank all of our sponsors, speakers and participants for their continued support and for making the forum a great success. We look forward to returning to Singapore next year for the 6th instalment of this important event.
NORD/LB Drinks Reception
All registered delegates are invited to attend the Euromoney/ECBC Asian Covered Bond Forum Welcome Reception hosted by NORD/LB the day before the conference from 17.30 to 19.00 on 5 February. If you wish to attend please email RSVP@euromoneyplc.com.
NORD/LB Drinks Reception Venue
Lantern Room, Lantern Rooftop Bar (beacon)
The Fullerton Bay Hotel
80 Collyer Quay
The vibrant diversity of Singapore has not yet been mirrored in the new issue practices of Singaporean covered bonds. Which is a pity —they are in a great place to be innovative.
One of the many joys for which Singapore is rightly praised is its diversity. Chinese, Malay, Indian and European cultures are all vibrant and valued there. This without politically correct Social Justice Warriors forcing an artificial model of diversity on you for political reasons. It works because it works and its fun.
The same however sadly can not be said about its covered bond market. The three issuers to have come to the market to date have all been spectacularly consistent in most of the terms of their deals.
Only medium maturities
The eleven deals launched so far have been almost exactly evenly distributed between three, five and seven years.
Now I can see the benefits of being conservative if market conditions are rough, or if the first few deals weren’t well received and the subsequent deals need a clear pricing benchmark, and switch opportunities. But without exception Singaporean covered bonds have been fabulously well received by investors. A good reputation like that gives issuers a lot of latitude to be a bit adventurous. The maturity distribution is particularly puzzling when you look at European issuance recently.
Many years ago five years was the maturity of choice for the first timers and the nervous. It was safe, it had the most benchmarks, could fit into most investors books and if you messed it up then not too much duration to multiply those extra basis points by quantify your incompetence.
But now, with short yields being so low or negative five year bonds have become a bit niche. Longer maturities with real coupons and dedicated pension and insurer buyers are increasingly the safer bet.
Ten year Singaporean covered bond? You would have to fight off the investors with a stick.
Is the answer to do with the asset-liability matching of the underlying assets? Or the availability of swap lines? Or just natural Singaporean risk aversion? That’s one of the questions I intend to ask at the Euromoney Asian Covered Bond Forum next week.
What about the deal size?
Another curious feature is the sameness of the issue size. Of those eleven bonds that I mentioned nine of them have been either €500m or as close as possible in Australian dollar terms (A$750m which I make approximately €490m). The only two outliers weren’t exactly off the scale: €750m and $1bn. Steady now.
Again there can be sound structural reasons for this – the desire to avoid a lumpy repayment profile for example. Or there can be perfectly justified (yet still risk averse) market reasons for this – keep the issue size as small as is compatible with benchmark status and generate a ‘limited edition’ feel to your bonds.
Again, I intend to ask.
Where it gets exciting
But, almost as if to make up for the, frankly boring, approach to maturity and size choice the Singaporean issuers have gone out of their way to issue in diverse currencies. From the first deal that surprised us all by being in US dollars rather than euros to the equally surprising frequent Australian dollar deals (ever noticed how many Australian accents you hear in Singapore? Could they all be investors?).
The traditional dominance of the euro market for covered bonds is arguably less when your bonds aren’t eligible for preferential risk weighting for euro investors or for the purchase programme of the ECB but these are surely rising tides that raise all ships – spreads go tighter for everyone, not just for the eligible bonds. If that is the main reason for Singaporean currency diversity it will diminish – as the ECB’s purchase programme tapers off and potentially Singaporean bonds become eligible for mutual recognition.
But I’m still waiting for the currency that I really want to see – Singaporean covered bonds issued in Singaporean dollars. I’m a firm believer in the benefits of covered bonds for the development of local fixed income markets. Maybe, finally, this will be the year?
By Richard Kemmish. Editorial Consultant, Euromoney Conferences