DBS

DBS: DBS is embarking on a global roadshow to sell its US$10b covered bonds programme in Asia, Europe and US, becoming the first local bank to test the strength of demand for high-grade mortgage-backed debt out of S'pore. DBS guides that depending on interest, its team could also visit Australia or the Middle East.

The covered bonds are expected to be rated triple-A, and will be issued in euros or USD. It will qualify as high-quality liquid assets needed to meet liquidity coverage ratios.

Securitizing assets is an alternative way for banks to generate cash from assets, while diversifying the source of funding, reducing overall funding cost and credit exposure to particular assets.

A statement issued by MAS earlier this month highlighted that banks are required to provide legal confirmation that the “cover pool” assets are being ring fenced beyond a creditors’ reach, and that bond holders should be given the highest priority to claims against assets, in any case of insolvency.

Additionally, MAS has set the limit on the amount of assets backing the bonds issued by Singapore banks to be at 4%. In contrasts, countries like Australia allow banks to issue bonds against up to 8% of its assets held in the country.

Separately, some bankers who specialised in the covered-bond market in Asia, are guiding that the yield from such high-grade debt may not be attractive enough to entice investors.

Yet, should DBS be successful in marketing its covered bonds, investors could potentially see its peers OCBC and UOB following suit.

Overall, Maybank-KE continues to feature DBS (TP: $24.80) as amongst its Top Buy picks in 2015, in view of the group’s ability to benefit the most amongst its peers from higher interest rates, and its resilient asset quality.

At the current price, DBS trades at 1.3x P/B. Overall, the street has 24 Buy and 3 Hold ratings with a consensus TP of $23.15.