ABN Amro finds favour in Singapore

The Singapore dollar market is not a natural home for European borrowers looking to raise capital. So when ABN Amro group treasurer Erik Bosmans suggested to colleagues that the bank should access the Asian currency, he was met with a combination of concern and scepticism.

Mr Bosmans worked in Hong Kong from 2006 to 2008 however, and during that time he built up a network of contacts across the financial sector. In the first few months of this year, he was told with some authority that the Singapore dollar market was opening up for non-Asian issuers. At the time, few major European borrowers had tapped this market, but private banking money was flooding into Singapore, its importance as a hub for Asian wealth was increasing and demand for income-bearing assets was growing.

Mr Bosmans began looking at Singapore dollars in May, considering whether the currency could play a part in ABN Amro’s extensive funding programme. The bank was effectively reborn in 2010, when the Dutch government merged parts of the old ABN Amro and Fortis Bank Netherlands to create a new banking entity. Back then, the bank had two goals: to refinance €60bn of debt and to convince investors that ABN Amro reborn was solid, client-focused and determined never to repeat past mistakes. The €60bn constituted 15% of ABN’s total balance sheet and was more than Greece’s annual budget deficit at the time.

“We had to get the volume of issuance right and the pricing right, and we had to show investors that we were simple, boring and very different from the old ABN Amro. We have consistently delivered that message since 2010 and over the past three years, investors have been increasingly convinced by it,” says Mr Bosmans.

Tier 2 target

The bank raised close to €28bn in 2010, about €18bn in 2011 and, at the beginning of 2012, targeted almost €15bn. By July of this year, its programme was nearly complete, but it wanted to raise €3bn in Tier 2 capital, at a time when investor sentiment towards these instruments was extremely unpredictable and regulatory uncertainty meant few funding options were available.

“The Dutch central bank said the only type of instrument we could use was old-style lower Tier 2 because there was so little regulatory clarity around capital raising,” says Mr Bosmans.

On July 4, ABN Amro issued a €1bn Tier 2 deal, aimed at European institutional investors. In September, it launched a $1.5bn Tier 2 transaction aimed at Asian retail investors. Three weeks later, the Singapore dollar deal was launched, a S$1bn ($816.6m), 10-year Tier 2 issue targeting institutional and retail clients and callable after five years.

“Having done two successful transactions, in euros and US dollars, I then started weighing up my options for a third transaction. We could have done a number of currencies – Swiss francs, sterling or even Norwegian krone, for example, but for me, price and execution risk were the determining factors and the Singapore dollar market came top on both fronts,” says Mr Bosmans.

“When I first suggested Singapore dollars, everyone was scared as no other European bank had issued a subordinated transaction in the Singapore market, but I was convinced it would be a major success for the bank,” he adds.

Meticulous planning

Communication was key, says Mr Bosmans – with investors, with legal and compliance specialists, and with ABN’s lead managers, namely Development Bank of Singapore, Standard Chartered and UBS. Singapore is a highly regulated market, so it was essential that the deal was correctly structured, particularly as the bank had never tapped the Singapore dollar sector before.

“It was completely new for us, so it was very nerve-wracking, but also very exciting,” says Mr Bosmans.

Investors needed plenty of reassurance too. Many people still associated ABN Amro with Royal Bank of Scotland so the bank had to explain exactly what it was and how it operated. There were further concerns around European bank regulations more broadly.

“There were lots of questions about lower Tier 2 and about how investors would be treated if the bank were to go bankrupt. They were also interested in our prospects and whether we might launch an initial public offering in the future. That said, Asian investors can take and are used to taking more risks than European institutional investors,” says Mr Bosmans.

Massive demand

The deal was finally launched on October 16. Initial guidance was for a coupon of 5% and the orderbook reached S$2bn within two hours. By the time Europe opened, orders had climbed to S$9bn and when the book finally closed, there were S$17bn of orders.

“As the orders came flooding in, I asked the bankers how to proceed and they suggested lowering the guide price to 4.75%. We wanted to make sure we had good institutional demand, as well as private client demand to ensure a robust after-market,” explains Mr Bosmans.

The transaction was ultimately priced at a coupon of 4.7%. Private banks took 58% of the bonds, while fund managers, banks, insurance companies and other institutions snapped up the rest.

“We were delighted with the response. We raised €3bn of Tier 2 capital in just over three months and we significantly raised our profile in Asia, which is one of our core markets,” says Mr Bosmans.