NEW UOB SGD TIER 1 : Join The Party

– Benchmark SGD Perp-nc-6 BASEL III-compliant T1 issue with reset at the first call date and every 5-years thereafter
– Initial Price Guidance: 4.90% area
– Size: benchmark

Security   Bid Px   YTC
UOBSP 4.9  102.00    4.41%       (Next call date Jul 2018)

I do not know what to make of this. War cry or act of kindness ?

Act of kindness – to present to the existing holders of DBS 4.7% the option to buy an equivalent paper issued by a bank and not a holding company at a higher yield for 1 year longer in call duration, just in case the holders are prorated on the new issue.

War cry – Yet the timing requires commitment of the bond holders and cash before DBS redemption proper next year. Riding on the heels of perp demand and the FNN holders who will get payment, UOB is luring buyers with a slightly higher coupon to capture a bigger slice of the piece and did I mention that bankers/RMs will get a rebate for selling this bond as opposed to nothing for the DBS issue ?

Seeing secondary market for the UOB 4.9% come off a little this morning to 101 on the offer before rebounding back up to 101.25 level now.

If you held a gun to my head, the old one is better at 4.6% coupon, the 15 month difference is worth at least 0.375% (5Y interest rates at 1.52% and 6Y at 1.82%). But I am talking purely from relative value and value for money perspective. Buyers usually look at the absolute coupon level and the 101 price for the old one may not be available to end buyers after all the commissions thrown in.

Might as well buy the new one because the bankers are paid by UOB directly to sell it and have no incentive to “add on” more commissions.

Having said this, I bet DBS will do nothing about it because the harder their 4.7% sells off, the more panicked the bond holders will be and rush for the tender. Will keep readers updated if DBS 4.7% comes under selling pressure which will be hard because banks have limited lines to buy too much of it anyway thus bankers would “encourage” clients to hold/”discourage” clients from selling.

The old DBS 4.7% perp is worth a buy at 100 or near 100 level because if they do a callback exercise in say 3 months time (using 12 Feb 2014), the yield would still be a nice 3.67%.