DBS Group Holdings (DBS Holdings) on July 9 made a rare foray in the offshore bond market, pricing a two-tranche deal totaling US$1.25 billion.

The Reg S/144A offering comprised of US$750 million fixed rate notes for five years, priced at par to offer a similar coupon and re-offer yield of 2.246%. This was equivalent to a spread of 58bp over the US treasuries, or at the tight end of the final price guidance of 60bp area (+/- 2bp). The bonds performed in the secondary market with the bid price at 100.16 in the early evening of July 10.

The other tranche was a floating rate note (FRN) amounting to US$500 million, also for five years, with a coupon of 50bp over three-month US dollar Libor.

The transaction was DBS Holdings’ first senior unsecured debt issue. “Following the Basel III implementation, it became more efficient for banks such as DBS to issue capital at the holding company level,” notes Clifford Lee, managing director and head of fixed income at DBS Bank. That was what DBS did last year when it undertook an innovative note exchange into a Basel III-compliant tier 1 at the holding company level.

As a bank holding company, DBS Holdings is a listed entity and the only asset it owns is DBS Bank. As such, investors look at this deal as a DBS Bank risk.

In executing the transaction, DBS Holdings held a series of conference calls with investors on July 7 and 8, and announced on July 9 a five-year benchmark-sized transaction in the US 144A market. It came out with an initial price guidance of US treasuries plus high 60bp, which Lee described as accommodating considering that the deal was launched following a poor market backdrop in New York overnight.

At the same time, all its closest comparables such as Sumitomo Mitsui Banking Corporation, Toronto Dominion Bank and ANZ have their bonds trading in their 50s.

The order book was opened during Asia morning and built nicely into the afternoon, with real money accounts piling into the deal. The demand really picked up with the opening of the US market where the issuer has a deep pool of investors interested in higher-rated bonds. The scarcity value also fuelled the orders as DBS Bank last tapped the US dollar bond market in early 2012.

Along the way, there were reverse inquiries for an FRN tranche and as the demand for the paper became more obvious when the US market opened, DBS Holdings decided to add it into the transaction.

The fixed rate bonds garnered an order book of over US$2.5 billion from 140 accounts with 50% of the bonds sold in Asia, 46% in the US and 4% in Europe. By type of investors, central banks, pension funds and sovereign wealth funds accounted for 43%, asset and fund managers 38%, insurance companies 9%, banks 8% and private banks 2%.

The FRNs attracted demand of US$600 million from 15 accounts with 55% of the paper allocated in the US, 43% in Asia and 2% in Europe. Asset and fund managers bought 56%, while the remaining 44% were taken by banks.

DBS was the sole global coordinator for the transaction, as well as a joint bookrunner along with Citi, Deutsche Bank and Goldman Sachs.

Drawn from DBS Bank and DBS Holdings’ US$15 billion global medium-term note programme, the bond proceeds will be used for finance and treasury activities of DBS Holdings, including the provision of inter-company loans, or other forms of financing, to DBS Bank and its subsidiaries.