United Overseas Bank (UOB) late last night priced a $500 million five-year bond, achieving the lowest coupon for an Asian financial institution (outside Japan) for a dollar bond of a similar maturity.
The initial guidance was in the area of 150bp and this was tightened to Treasuries plus 144bp to 146bp with the bonds pricing at the tight end — at Treasuries plus 144bp. The coupon was fixed at 2.25% and the bonds reoffered at 99.868 to yield 2.278%. UOB, ANZ, Credit Suisse and Nomura were joint bookrunners.
UOB is the second Singapore lender to tap the dollar market recently, with rival lender DBS Bank printing its $1 billion five-year bond a week ago, so obvious comparisons were made between the two deals.
Temasek-linked DBS priced its $1 billion five-year at Treasuries plus 145bp and offered investors a 2.35% coupon. Its deal was without doubt aggressively priced, and US investors drove the tightening. In contrast, Asian investors drove UOB’s deal.
Despite not tapping the US investor base, UOB managed to price its bond 1bp inside of DBS on a spread over Treasuries basis, albeit for a deal that was half the size. UOB’s bonds also priced 7bp inside the outstanding DBS 2017s, which traded at Treasuries plus 151bp at the time of the announcement.
Both DBS and UOB are similarly rated Aa1 by Moody’s and AA- by S&P and Fitch. UOB’s senior bonds mature March 7, 2017.
While the US investor base has grown in importance — with deals such as DBS and Reliance Industries riding on US demand to print aggressive trades — for issuers that want to tap in smaller sizes, the Asian and European investor base still seems to be an option.
“It’s a $500 million deal size and the bank was happy to do a drawdown on its MTN programme, so it was easier to just tap the Reg-S market rather than go through the song and dance of a 144a deal,” said one person familiar with the deal. The notes were drawn down from UOB’s existing S$5 billion medium-term notes programme.
Central banks, insurers, pension funds and banks participated strongly. However, the aggressive pricing and the prospect of further imminent supply from Asian banks turned some fund managers off.
“UOB is looking expensive. It is priced too tightly so I’m not looking at it. We’ve seen DBS come very tight and trade poorly in the secondary market — and that’s not a reflection of the bank,” said one Hong Kong fund manager. “Also, we might see more supply from the banks.”
UOB was founded in 1935 and is one of the three biggest banks in Singapore. Local tycoon Wee Cho Yaw is the chairman and the bank is run by his son Wee Ee Cheong, who succeeded him as CEO in 2007. The conservatively run bank last week reported a fourth quarter net profit of S$558 million. According to analysts, the management is guiding for loan growth in the low teens in 2012 — in line with its peers DBS and OCBC.
Bond issuance so far this year has been dominated by Hong Kong companies but more Asian banks have started to wade into the market. As European lenders retreat from the region, that shortfall is expected to be partly filled by Asian banks and they will need to find a way to fund it.
Korean lenders Export-Import Bank of Korea and Korea Development Bank issued early this year, while Indian private sector lender Axis Bank printed a deal earlier this week — making it the first Indian bank to issue this year.