DBS Preference Share Switch

Nov. 7 (Bloomberg) — Buy back is for non-cumulative non-convertible non-voting class N preference shrs callable in 2020: DBS in exchange filing.

  • DBS to accept tenders amounting to S$800m

A Holder whose Existing Preference Shares are accepted by DBSH for purchase will receive (a) Singapore Dollar Denominated Non-Cumulative Non-Convertible Perpetual Capital Securities First Callable in 2019 and with an initial distribution rate of between 4.70% and 4.90% per annum to be issued by DBSH in a principal amount equal to the liquidation preference of the Existing Preference Shares that are accepted for purchase, and (b) accrued but unpaid dividends on the Existing Preference Shares.
DBSH is proposing to accept tenders amounting to S$800,000,000 in liquidation preference of Existing Preference Shares, or a lower or greater aggregate amount at DBSH’s discretion.

For the avoidance of doubt, the Tender Offer is in respect of the Existing Preference Shares only and does not apply to the S$800,000,000 4.70% Non-Cumulative Non-Convertible Non-Voting Class O Preference Shares Callable in November 2020 (ISIN: SG2C54964409).

Nobody in their right minds will read the 133 pages of the document highlighting the rationale for the switch and the risks of holding the new perp under Basel 3 laws.

Given that there are no details on the new securities except that there will be a call in 2019, 4.7% would make the UOB trading price look a tad expensive.

Current market price is 101.50 to 102 ( 4.36-4.38% to 2020 call) last done for this bond. The new UOB perp 4.9% callable in 2018 is going at 102.50 mid (4.3%).

Why not sell out at market ? The retail issue trading in the stock market is going for 107 level, which makes this wholesale tranche look cheap and DBS is only tendering for half the total issue size of SGD 1.7b bio.

An even better idea would be to sell out at 101.50-102 i.e. do not do the switch and consider an alternative investment in say, the Sembcorp 5% perpetual callable 2018 which is still trading at 100.10 level.

Corporate perpetuals are not bound by Basel 3 and do not have a loss absorption clause. Forgive me, I am just playing the devil’s advocate.