SGD New Deals : UOB Tier 1 and Aspial AGAIN (I did warn you before)

NEW ISSUE: UNITED OVERSEAS BANK SGD ADDITIONAL TIER 1 PERPETUAL NC5 ***
ISSUER:  United Overseas Bank Limited
DESCRIPTION:   Subordinated, unsecured, non-cumulative, non-convertible perpetual capital securities
REGULATORY TREATMENT:   Intended to qualify as Additional Tier 1 capital of the Issuer
ISSUER RATINGS: Aa1 (Moody’s) / AA- (S&P) / AA- (Fitch) (All Stable)
EXPECTED ISSUE RATINGS:   Baa1 (Moody’s) / BBB (Fitch)
ISSUE SIZE: SGD Benchmark
TENOR: PERPETUAL NC5
INITIAL GUIDANCE:  [●]% area (5% area indicative)
DISTRIBUTION PAYMENT:   Fixed rate, payable semi-annual in arrear, fully discretionary, on a non-cumulative basis
RESET MECHANISM:  If not called by the Issuer, the Fixed Distribution resets at the first call date and every 5-years thereafter at the prevailing 5-year SGD SOR plus the initial margin with no step-up

DIVIDEND STOPPER :  Permitted
LOSS ABSORPTION EVENT:  Earlier of the regulator notifying the Issuer in writing (i) that a write-off is necessary or (ii) of its decision to make a public injection of capital or equivalent support, (in each case) without which the Issuer would become non-viable

WRITE DOWN (PARTIAL ALLOWED):
(i) Upon occurrence of a Loss Absorption Event, cancellation of the accrued distributions and if insufficient, permanent writedown (partial or in full) of the prevailing principal amount

(ii) Write-down amount is ascertained by Issuer (and the Regulator is satisfied) such that the amount written-off will be sufficient to ensure that the Issuer ceases to be non-viable

 (iii) Write-down pro rata with Parity Tier 1 instruments that include loss absorption features

ISSUER REDEMPTION:      At first call date, [●] 2018, and any distribution payment date thereafter, subject to regulatory approval

EARLY REDEMPTION:   Upon occurrence of Change of Qualification or Taxation Events, subject to regulatory approval
USE OF PROCEEDS:  Intended to allow redemption of the existing Class E Preference Shares, subject to regulatory approval

Key takeaway are the following.

1. Loss absorbing
2. Reset every 5 years

This issue is intended to redeem the UOB 5.05% retail bond in Sep this year when its call date falls due which means this bond better have a coupon rate lower than 5.05% or there is no incentive for the bank to call. That is because the existing Class E preference shares are 1. Not loss absorbing and 2. does not have a coupon refix in Sep this year.

The loss absorption clause is something the world has to learn to live with. Note the following risks.

1. each coupon is 100% discretionary
2. regarding the write down – can the bonds be written back up in the future ?The risks of a write down is slimmer for Singapore banks as we note from history. In 2008, the 3 local banks did not even need to do equity rights issues to bolster their capital.

This deal is priced to sell. UOB 5.05% has an issue size of SGD 1.32 billion.

But more importantly, it makes the OCBC 4% non cumulative perpetual callable in 01/2018 look real bad and that issue does not have a coupon refix as well. Then again, since when have we ever seen an OCBC bond issue that works in our favour ?

ASPIAL AGAIN ???

Aspial Corp Markets Singapore Dollar Bonds to Yield Low 5% Area (Bloomberg)

July 15 (Bloomberg) — According to a person familiar with
the matter.
• Rating: Unrated
• Tenor: 3y
• Initial Price Guidance: low 5% area
• Timing: As early as this week
• Sale Manager: DBS
• Information from a person familiar, who asked not to be identified because the terms aren’t set

Why do they need so much money when they do not have loans or bonds due ?

Expansion ? With their financial leverage making Olam look good, I am worried and so soon after their consent solicitation. It is like they are in a huge hurry to make themselves look bad or, desperate.

 

Related articles

• Presenting Singapore’s Potentially Over Leveraged Corp Bonds (tradehaven.me)
• Aspial Bond Follow Up (tradehaven.me)