The Asian Development Bank (ADB) launched its maiden Singapore dollar denominated bond yesterday (Tuesday) raising S$200 million ($117.8 million) from a dual tranche issue led by HSBC. The second tranche was denominated in Hong Kong dollars, making the deal the first Asian dual currency issue by a supranational since 1999 when both the IFC and EBRD completed issues in Hong Kong and Singapore dollars.
On a post swap basis, both tranches are said to have fallen only marginally outside the supranational's current sub libor funding target of minus 25bp.
A HK$1 billion ($128 million) three-year issue was priced at par on a coupon of 2.85%. This represented a yield of about 4bp over the bid side of the Hong Kong government's June 2007 Exchange Fund note. Co-leads were Bank of East Asia and ICBC
The Singapore dollar denominated tranche also had a three-year maturity and was priced at par with a coupon of 1.845%. This represented a yield of about 27bp over the interpolated Singapore government curve.
As there is no on-the-run three-year government bond, the lead used March and October 2007 bonds as benchmarks. There was no other syndicate.
Juan Limandibrata, ADB's head of funding, says that a Singapore dollar deal became possible after the Singapore bond swap spread widened. "We've been looking at the Singapore dollar market for a number of years, but it was never cost efficient for us," he comments. "However, the Singapore interest rate swap has recently moved out and this gave us our opportunity to issue."
Bankers say the fixed to floating rate swap has moved from a 30bp level to as wide as 60bp before coming back in to the mid 50bp level when the deal was launched. This movement enabled ADB to structure a transaction that could be priced at an appealing level to Singapore accounts relative to domestic government bonds, while remaining cost efficient on a post swap basis..
Year-to-date, ADB has raised about $500 million of its $3.5 billion 2004 target. So far, most of the issuance has been in the structured note market, although the supranational also broke new ground in late February when it raised funds in the Indian rupee market for the first time.
ADB also has applications pending with the Thai and Chinese governments to issue debut domestic currency issues and believes both approvals will be forthcoming within the next year. Limandibrata says the Thai government is now in the very final stages of approving transactions by ADB, IFC and the World Bank, while the Chinese government is a little further behind.
He also comments that the recent spike in US Treasury yields will have a minimal impact on the borrower's funding costs. "On an absolute basis, the effect is pretty neutral because we swap everything back to floating rate and our sub libor funding cost has come in quite sharply," he says. "We used to have a sub libor target in the mid-teens but there's been a marked flight to quality over the last six months, which this has enabled us to fund about 25bp through Libor."
A $1 billion bond is also pending this year and Limandibrata says this is most likely to be issued in the autumn. He also reports that ADB's strategic foray into Hong Kong dollars and Singapore dollars left him very satisfied.
"Being able to do a simultaneous issue in two currencies like this underlines how sophisticated the Hong Kong and Singapore bond markets are," he concludes. "There's a high degree of market development, regulatory foresight and user friendly documentation."
