UOB achieves lowest yield for SGD perpetual AT1 bond deal
Bond sale prices at par with a fixed distribution rate of 3.58% per annum, amounts to US$551.5 million, with 91% allocated in Singapore
Singapore lender United Overseas Bank (UOB) returned to the Singapore dollar bond market with a tightly priced perpetual capital securities on July 10 amounting to S$750 million (US$551.50 million).
The perpetual non-call seven additional tier 1 (AT1) deal was priced at par with a fixed distribution rate of 3.58% per annum. It was subject to a reset on the first reset date – and every seven years thereafter – to a rate equal to the then prevailing seven-year Singapore dollar swap offer rate plus the initial spread of 1.795%. Relative to new trades seen this year, this transaction saw very minimal new issue concession.
At 3.58%, this was the lowest ever yield for a Singapore dollar Basel III-compliant AT1 offering, and well below the 3.98% achieved by DBS in its September 2018 transaction amounting to S$1 billion and the 4% rate notched by Oversea-Chinese Banking Corporation when it priced its AT1 capital securities in August 2018, also amounting to S$1 billion.
The transaction demonstrated limited price sensitivity, with the order book holding together through the price revisions, which likewise illustrated the strength of demand for UOB credit and its strong investor following. This came as the deal gained immediate traction among investors when it was launched in the morning of July 10 with orders reaching more than S$1 billion by 11 am, then increasing to S$2 billion by 3 pm and peaking at S$3 billion with the announcement of the final price guidance at 5.40 pm.
The final demand stood at about S$2.8 billion from over 105 investors, with 91% of the bonds allocated in Singapore and 9% outside of Singapore with interest from investors in Hong Kong, South Korea, Australia and Europe. The size of the order book was in line with the largest seen in recent transactions despite the lower yield offered on this trade.
By types of investors, private banks accounted for 50% of the paper, fund managers 21%, insurance companies 20%, public sector 6%, banks 2%, and corporates and others 1%.
Sean McNelis, co-head of debt capital markets for Asia-Pacific at HSBC, which acted as a joint lead manager for the transaction, notes that UOB is a rare issuer in the Singapore dollar market, last accessing the market in 2017.
“UOB’s successful track record of issuance, both with local and international investors, across various currencies, ensured the transaction received attention from both institutional and private banking investors during a day of heavy US dollar supply in the market,” he says. “The bank was able to price a successful transaction at a record-breaking yield for a Singapore dollar AT1, which is a testament to its strong credit and timing in bringing the transaction to market during the current attractive market window.”
The capital securities are intended to qualify as AT1 regulatory capital of the bank. They are also subject to write-off at a point of non-viability, as determined by the Monetary Authority of Singapore.
The capital securities are issued under UOB’s US$15 billion global medium-term note programme. UOB acted as the sole global coordinator for the transaction and together with ANZ, HSBC, Standard Chartered and UBS as joint lead managers.
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11 Jul 2019