SGD New Issue Review : UOB Tier 2 SGD 12Y NC 6

UOB S$ BASEL III COMPLIANT 12NC6 TIER 2

** NEW SGD 12-NONCALL-6 TIER 2 TRANSACTION ANNOUNCED
** PRICE GUIDANCE: 3.75% AREA
** EXPECTED ISSUE RATINGS: A2 (S&P) / A+ (Fitch)
** ISSUE SIZE: SGD BENCHMARK
** AS EARLY AS TODAY

** COMPS
TIER 1
UOBSP  (Baa1/BBB-)  S$850M  4.90%  PerpNC-JUL18  B3 T1   103.90 / 3.88% YTC
UOBSP  (Baa1/BBB-)  S$500M  4.75%  PerpNC-NOV19  B3 T1   103.65 / 4.00% YTC
DBSSP  (Baa1/BBB)   S$805M  4.70%  PerpNC-JUN19  B3 T1   103.80 / 3.92% YTC

TIER 2
UOBSP  (Aa3/A+)     S$1.2B  3.15%  2022NC-JUL17  B2 T2   101.00 / 2.82% YTC
DBSSP  (Aa3/A+)     S$1.0B  3.10%  2023NC-FEB18  B2 T2   100.36 / 3.00% YTC
STANLN (A3/A-)      S$700M  4.40%  2026NC-JAN21  B3 T2   102.45 / 3.98% YTC

Ok. At this point, I do not have the full details. Thus I will assume it is on the same terms as the USD Tier 2 issue done in March. https://tradehaven.net/market/3-new-issue-reviews-amtek-engineering-uob-usd-10-5nc5-5-tier-2-and-sabana-reit/

The UOB 3.75% 09/2024 callable 09/2019 is trading just under 100 at the moment, 99.75/100.00. It’s credit spread has tightened 0.15-0.20% from issue date.

The Selling Points ….
“LOSS ABSORPTION EVENT: Earlier of the MAS notifying the Issuer in writing  (i) that a write-off is necessary or (ii) of its decision to make a public injection of support,(in each case) without which the Issuer would become non-viable
WRITE-DOWN (PARTIAL ALLOWED)*: (i) The Issuer shall permanently reduce the principal amount and cancel any accrued but unpaid interest by an amount as ascertained by the Issuer to be sufficient to ensure the Issuer ceases to be non-viable
WRITE-DOWN (PARTIAL ALLOWED)*: (i) The Issuer shall permanently reduce the principal amount and cancel any accrued but unpaid interest by an amount as ascertained by the Issuer to be sufficient to ensure the Issuer ceases to be non-viable
(ii) Write down will occur only after Additional Tier 1 Securities with loss absorption features are fully written off and pro rata with parity Tier 2 instruments that include loss absorption features * Subject to MAS approval”

6 year interest rates are 1.91%. Thus this bond will give you a 1.84% premium. The recent USD bond with less than 5.5 years left to go is going at a credit premium of 1.95%.

This is a very clever coupon level indeed. Because no one is going to sell the old UOB 4.75% perp callable 11/2019 at 4% to buy this one at 3.75%. Perhaps some may consider selling the old UOB 3.15% Tier 2 or the DBS 3.1% Tier 2 or all Basel 2 grandfathered local bank issues like OCBC 4% perp ? All of which run the risk of early call backs. (But which will have to be replaced with new bonds)

It also challenges our perception of the Tier 1 and Tier 2 differential for systemically important banks like UOB. What is the difference between Tier 1 and Tier 2 realistically ?

Other selling points :
1. Coupon is not deferable
2. Ratings 1 notch above the perpetual at A2/A+ vs Baa1/BBB

Then again, this is UOB lah !

 

More Details

UOB S$ BASEL III COMPLIANT 12NC6 TIER 2 – PRICE GUIDANCE ***

ISSUER : United Overseas Bank Limited

ISSUER RATINGS  : Aa1 / AA- / AA-, all stable (Moody’s/S&P/Fitch)

ISSUE  : Basel III-compliant SGD Tier 2 Subordinated Notes

ISSUE RATINGS  : Expected A2 / A+   (Moody’s/Fitch)

FORMAT  : Regulation S (registered) drawdown under EMTN Programme

SIZE  : SGD benchmark

TENOR : 12 non-call 6 years

PRICE GUIDANCE : 3.75% area

 

RANKING:  Direct, unsecured and subordinated Tier 2 capital of the Issuer pursuant to MAS Notice 637

REDEMPTION DATES      : One time call at par in year 6, subject to MAS approval

EARLY REDEMPTION      : Upon occurrence of Change of Qualification or Taxation Events, subject to MAS approval

COUPON/ RESET            : If not called on first call date, fixed coupon resets at the first call date to the prevailing 6-year SOR plus initial spread 

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

WRITE-DOWN
(i) The Issuer shall permanently reduce the principal (PARTIAL ALLOWED)*:     amount and cancel any accrued but unpaid interest by an amount as ascertained by the Issuer to be sufficient to ensure the Issuer ceases to be non-viable

(ii) Write down will occur only after Additional Tier 1 Securities with loss absorption features are fully           written off and pro rata with parity Tier 2 instruments that include loss absorption features                                    * Subject to MAS approval