United Overseas Bank (UOB) defied market conditions on Monday to raise a S$500 million ($400 million) Basel III Tier 1 perpetual (perp) with a callable option in the sixth year, pricing on the tighter end of its final price guidance.
The perp, which had an initial price guidance of about 4.9% when launched on Monday morning, tightened to final guidance of 4.75%-4.8% by the evening and ended pricing at the tighter end, according to a term sheet seen by FinanceAsia.
UOB, Southeast Asia's third-largest lender, has an existing Basel III Tier 1 perp – the first ever in Asia – that was issued in July this year and was quoted at 4.41% in secondary markets at the time of pricing.
However, that bond has a call date in 2018, while the new one is in 2019. The price difference is a reflection of the variation between the call dates plus some new issue premium, according to a source.
“We were able to go out with a trade and price on the same day despite the increase in yields over the weekend as a result of better than expected employment numbers from the US,” said a source close to the deal. “We thought that it’s still a trade that could attract investors.”
“Investors like the name and they want to buy capital products on yield pickup with names that they are comfortable and familiar with,” he adds.
UOB’s latest Basel III Tier 1 note – rated Baa1/BBB – achieved an order book of S$1.85 billion from 71 accounts. Private banks subscribed to a bulk of the papers, accounting for 68%, followed by insurance companies with 21%, agencies 8% and fund managers 3%.
As with any local currency transaction, onshore investors dominated, accounting for 99%, while the rest went to offshore investors.
In the event that UOB does not call the notes, there will be fixed distribution resets at the first call date and every six years thereafter at the prevailing six-year Singapore dollar swap offer rate (SOR) plus the initial margin with no step-up. The spread to SOR is 1.83% plus 292bp.
The deal – just like UOB’s existing one – has a non-viability trigger, which means that the proceeds can be partially or fully written down to zero if the regulator deems that the write-off is necessary or decides to make a public injection of capital.
Market volatility
Speculation that the Federal Reserve (Fed) will begin winding down the US economic stimulus next month grew in recent days after the latest figures for job growth released on November 8 beat market expectations.
The world’s biggest economy shrugged off the impact of the three-week government shutdown to create 204,000 new jobs, which stunned markets and prompted anticipation that the US central bank will start tapering away its $85 billion a month bond buying programme. Financial markets were initially bracing for an increase of 120,000 in October from non-farm payrolls.
Ten-year Treasury yields, which surged to this year’s high of 3.01% in September, ended at 2.75% last week after falling to as low as 2.47% last month.
High-yield spreads have widened by 2bp in Asia over the past week, while investment grade spreads widened by 4bp as investor sentiment turned more bearish. UOB’s latest Tier 1 issuance is trading around par.
Credit Suisse, Nomura, Standard Chartered, UBS and UOB were joint-bookrunners of UOB’s Tier 1 transaction.
