Singapore Capital Markets Deal: UBS’s S$650m AT1
Foreign banks selling capital bonds are no strangers to Singapore’s bond market, but UBS Group’s S$650m (US$482.6m then) Additional Tier 1 deal was remarkable not only as the first out of the gate in 2024, but also because it came less than a year after UBS’s absorption of Credit Suisse saw the latter’s AT1s written off.
The Credit Suisse write-off shocked global markets, but it was particularly painful in Singapore, where hundreds of investors sought to bring a class action suit against the Swiss government in a bid to recoup their losses on the bank’s AT1s, which included a Singapore dollar-denominated issue. At the time of writing, the lawsuit was ongoing.
Since the write-down in March 2023, there had not been any foreign AT1 transactions in Singapore.
When UBS stepped up to the plate the following February to issue AT1s again, all eyes were on the trade.
The timing – on February 15 – was tricky, coming at the tail end of Lunar New Year celebrations that typically keep the market quiet.
Nevertheless, the issuer felt confident, having soft sounded investors and found interest in the notes.
UBS timed the deal one month after local bank OCBC printed a S$450m perpetual non-call 5.75-year AT1 at 4.05%, a transaction which showed there was still good demand for AT1 paper.
Initial price guidance for UBS’s perpetual non-call 5.5-year was set at 6.125% area and the order book swelled to a peak of S$1.85bn by the afternoon.
The strong book allowed a 37.5bp tightening to price at 5.75%, with over S$1.65bn of orders from 67 accounts at reoffer.
The good demand was in part due to the bank’s decision to assuage investor concerns over another write-down by introducing an equity conversion provision in the new deal, which allows the debt to be converted into equity upon a trigger or viability event. The clause prevents a repeat of the total write-offs AT1 holders experienced in 2023.
Singaporean investors were also given additional comfort because UBS had redeemed a S$700m 5.875% AT1 at its call date in November 2023.
The transaction solidified UBS’s place in Singapore’s bank capital market, allowing it to follow up with another S$500m perpetual non-call 5.5-year AT1 at 5.6% in June.
UBS was sole global coordinator. It was also joint lead manager with DBS Bank, OCBC, Standard Chartered and United Overseas Bank.
The deal opened the floodgates for bank capital and was followed by more AT1 issues from foreign financial institutions, rebuilding a market that offered arbitrage opportunities for issuers and attractive yields for Singaporean investors.
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