OCBC in Malaysian pref share first

OCBC undertakes a capital management first for its Malaysian subsidiary.

OCBC Malaysia became the first bank in Malaysia to offer rated preference shares on Wednesday when it completed a RM400 million ($110 million) deal. The placement of four million non-cumulative non-convertible preference shares was priced at RM100 per share and rated AA3 by Rating Agency Malaysia.

OCBC Malaysia was lead arranger and joint lead manager on the deal. CIMB was joint lead manager and secondary book maker.

The issue counts as tier one capital for the bank and sits between its common equity and its sub debt. After the deal, OCBC Malaysia's tier one capital increases from RM1.227 billion to RM1.627 billion. The bank's total capital base will increase to RM2.5 billion.

With the increase in capital, OCBC Malaysia's core capital ratio and risk-weighted capital ratio will also strengthen from 5.91% and 10.12% to 7.84% and 12.05% respectively. What makes the deal interesting is that it is the first time any bank has offered such preference shares to non-existing shareholders and as such it expands the possible capital management tools for banks operating in the country.

"Being the pioneering bank to offer rated preference shares to investors such as insurance companies, fund managers and private banking clients, we're happy to have paved the way for greater development in Malaysia's capital market for bank capital instruments," says Dato' Albert Yeoh, CEO of OCBC Malaysia.

The bank would not reveal the final distribution figures of the deal, although it was oversubscribed. This led the deal being upsized from an original size of RM300 million up to the RM400 million level.

Investors were said to be attracted to the tax credit that comes with the shares. On top of a 4.51% dividend payout on the shares, investors can get credit for the 28% tax that OCBC has paid on the shares.

This could lift the yield on the issue up to around the 6.1% level. The deal could also be seen as one of the first moves by the foreign banks operating in Malaysia to build up war chests ahead of acquisition possibilities in 2006, when the Financial Markets Masterplan allows more foreign banking presence in the country.

"Though we're not in need of capital currently, raising tier-1 capital will strengthen OCBC Malaysia's capital base in preparation for future expansion and growth," says Yeoh. "It is also a significant step forward in our commitment to manage our capital structure more efficiently."

The deal is the latest in a string of capital management exercises by OCBC. In January the Singapore parent undertook a S$500 million ($305 million) issue of guaranteed preference shares. The latest deal further shows the determination of OCBC to run an efficient funding strategy as it seeks to expand around the region under its CEO David Conner.

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