Best Islamic Deal: UOB’s debut M$500m Tier 2 sukuk
Broader reach
United Overseas Bank’s decision to venture into the sukuk market through its Malaysian subsidiary was a tactical move that allowed the bank to access a new investor pool and align its fundraising with the growth in its Islamic assets.
UOB planned the deal for January to take advantage of good liquidity and conducive markets at the start of the year. The bank decided to wait for a Malaysian peer to print the first Tier 2 sukuk of the year and use that as a gauge for its own deal. A M$3bn Tier 2 sukuk offering by Maybank opened the market, pricing at 48bp over the government benchmark.
The following week, UOB Malaysia successfully priced a M$500m (then US$105.8m) 10-year non-call five Tier 2 Islamic deal at par to yield 4.01%, the tight end of the initial price guidance of 4.01%–4.06%.
Despite having a foreign parent, UOB’s Tier 2 sukuk achieved a final spread of 45bp, the tightest ever recorded in the ringgit market for a Tier 2 capital instrument at the time.
Even so, the deal achieved oversubscription of almost 3.4 times. It was distributed to 42 accounts, compared to an average of around 20 in conventional Tier 2 deals, according to bankers on the transaction.
The planned deal size was communicated upfront to generate momentum and identify real interest and pricing levels. The leads had also conducted extensive roadshows and meetings with investors ahead of the transaction, which clearly paid off.
Demand grew rapidly to almost M$1.4bn within the first hour of bookbuilding, with orders peaking at M$1.8bn by lunchtime. Minimal attrition occurred after tightening, and final books settled at M$1.7bn. Distribution, moreover, was heavily skewed towards real money with insurers taking up 25% of the notes, asset managers 58%, private banks 2%, banks 11% and corporates 4%.
UOB Malaysia established a debut M$5bn sukuk wakala programme in late 2023 to add a funding channel aligned with its Islamic assets, which made up around 10% of total assets. While the Tier 2 sukuk format is popular among domestic banks, UOB Malaysia’s deal was the first public issue from a foreign-owned bank for some time.
CIMB Investment Bank and UOB Malaysia were the joint principal advisers, lead arrangers and lead managers on the transaction and the sukuk programme.
The subordinated notes were rated AA1 by RAM.
The deal helped UOB cement its position as one of the country’s leading foreign banks and is reflective of the bank’s focus on long-term strategy over opportunistic trades.
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