United Overseas Bank priced the largest-ever Basel III-compliant, Singapore-dollar bond on Monday, setting a fresh benchmark for other issuers and achieving tight pricing thanks to continued strong demand from private banking clients for subordinated bank capital.
The Singapore local lender, rated Aa1/AA-/AA- by Moody's/S&P/Fitch, raised S$750 million ($528) from the sale of a 12 non-call seven-year bond. The tier-2, Reg S deal was priced at par to yield 3.5%, narrowing from initial price talk in the 3.75% area, and exceeded Standard Chartered’s S$700 million offering in January 2014.
Before that, in July 2012 under the previous Basel II regulatory framework, UOB sold a S$1.2 billion bond that is first callable in July 2017 and pays a coupon rate of 3.15%.
"The issuer benefits from a mix of a lack of supply in the Sing dollar market and hunger for yield," a syndicate banker running UOB's latest deal said, noting how eight other local currency deals have been sold so far this -- a fraction of the US dollar bonds sold by Asian issuers over the same period.
"The new deal is the tightest and largest one among Singapore dollar-denominated tier-2 bonds," the banker said. "Investors showed little concern for the riskier nature of tier-2 bonds because UOB is one of the top-rated lenders globally."
The deal has a one-time call option at par in February 2024 and a reset at the prevailing five-year mid-swap rate plus initial spread of 1.080%. There is no step-up in the coupon, making it less likely for the issuer to call back or redeem the bond before maturity.
The sale attracted an order book of S$1.6 billion from 91 accounts. As expected, private banking investors were major buyers, representing 40% of the bonds. Insurance firms and banks bought 37% and 20%, respectively, with the remaining 3% going to corporates/others.
"The final order book was little changed from S$1.8 billion at [its] peak level, even though the pricing was aggressive," the banker said.
UOB's new Singapore-dollar tier-2 bond was priced at 108 basis points over the seven-year mid-swap rate -- 2 bp tighter than DBS's S$250 million 3.8% January 2028 bond, which traded at 110bp over the mid-swap rate.
Despite the aggressive pricing, the tier-2 bond traded up slightly in secondary market trading on Tuesday. The bond was quoted at 100.15 to yield 3.48%, 2bp tigher than its re-offer price.
UOB's last appearance in the Singapore dollar market was in May 2016, when it sold a S$750 million 4% non-call five bond. Three months after, the lender raised another US$500 million from a US dollar-denominated tier-2 structure.
"The pricing achieved by UOB set a new benchmark in the local dollar market," a Singapore-based investor told FinanceAsia, anticipating further issuance in the days ahead. "German lender Commerzbank may launch their Sing dollar deal as soon as this week, riding on the bullish momentum."
UOB, HSBC, ANZ and Credit Suisse were joint book runners for the new tier-2 deal.