Bonds: UOB to reveal price of Basel III compliance

[FreckledFuzz]

http://www.ifre.com/bonds-uob-to-reveal-price-of-basel-iii-compliance/21096666.article

 

 

 

United Overseas Bank is set to become the first Singaporean lender to print a Basel III-compliant Tier 1 bond, and all eyes are on the pricing as banks across Asia look for a benchmark for future capital raisings.

UOB, rated Aa1/AA–/AA–, has announced price talk of 5% area for a Singapore dollar perpetual note, which will be callable after five years.

Leads were referencing as comparables OCBC’s Tier 1 perp and DBS perp with January 2018 and October 2020 call dates, which were trading at yield to call of 4.25% and 4.54%, respectively.

UOB’s new notes, however, will be written down partially or in full if the Monetary Authority of Singapore determines that the bank is no longer viable. That so-called “non-viability” clause does not feature on earlier deals, such as the OCBC or DBS notes used for comparison.

“It’s about a 50b–100bp pick-up. Of course, as this is a loss-absorbing Tier I, there is some difference in the pick-up. I think the loss-absorption feature needs to be analysed to see how much you need to be paid above that,” said a Hong Kong-based credit analyst.

“It seems like the MAS has left some room for interpretation because there is no specified trigger as we see in the European trades that have an explicit one at which securities will be written down. Here, it is just subject to the MAS,” said the analyst to explain that the feature could make it more investor friendly.

Potential buyers will have to decide for themselves if the lack of such a defined trigger point means the MAS will give a failing bank more flexibility to turn around its business, or if it will step in earlier to protect other investors.

The uncertainty has contributed to Fitch rating the issue five notches below the issuer’s senior unsecured rating at BBB, and Moody’s rating it six notches below at Baa1.

The new deal carries a rebate of 25 cents for private bank allocations.

ANZ, HSBC, Nomura, Standard Chartered, UBS and UOB are leads on the deal, which is expected to be today’s business.

Others could follow UOB’s footsteps. DBS recently amended its US$15bn global MTN programme to include contingent convertibility provisions to allow it to issue subordinated bonds more compliant with Basel III rules.

 

[calkid11]

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