OCBC yesterday formally set up a $2 billion euro commercial paper (ECP) programme with the help of Citigroup and Deutsche Bank. The programme will allow OCBC to issue short term paper up to 364 days in maturity. The paper can be denominated in any major global currency, although the bulk of it is likely to be issued in US dollars due to the ease of swapping it back into Singapore dollars if needs be. No paper has yet been sold from the programme.
The programme has been rated A-1 by S&P, Prime-1 by Moody's and F1 by Fitch, the highest short-term ratings available.
The ECP programme was first announced back in May this year, when the bank said it was looking to expand and diversify its sources of funding. By establishing this programme the bank can better manage the asset / liability, currency and maturity profiles of its funding as well as reducing its dependence on the domestic Singapore market. Indeed it is perhaps an indication of the strength of the domestic Singapore savings market that it has taken up till now for OCBC to go to this ECP market, which is one of the largest and oldest markets in the world for bank funding.
But as more competition comes into the Singapore banking market with the increasing presence of foreign banks, funding costs for deposit funds are expected to rise while the overall market share of the big three Singapore banks can be expected to fall. In this light a diversification of funding sources looks eminently sensible.
Following the announcement of the ECP programme in May, OCBC successfully sold a rare senior debt deal in June, when it completed the sale of a three-year FRN, also through Citi and Deutsche. This deal had a spread of 10bp over Libor. This deal won plaudits from the market for being book built as opposed to the traditional syndicated style of pre-crisis Asian bank FRNs.
The two deals show the determination of OCBC to run an efficient funding strategy as it seeks to expand around the region. In recent months it has acquired substantial control of its listed insurance subsidiary Great Eastern Holdings. It has also bought a stake in Bank NISP of Indonesia and it is understood to be looking at possible acquisitions in China. With this kind of expansion, having as much access to as many markets around the world is greatly beneficial.
"By tapping into these offshore capital markets, we will diversify our funding sources, gain experience in using these markets and give more investors the opportunity to get to know OCBC as an issuer," said David Conner, CEO of OCBC back in May. "Over time, we expect to be able to take advantage of the changing conditions in these markets to achieve even lower costs for our overall funding needs. While deposits will always remain an important source of funds, we believe this move will give us greater flexibility as we continue to expand, both in Singapore and overseas."
