UOB opens Singapore dollar market

IFR Asia 1270 - 21 Jan 2023 - 3 Feb 2023
4 min read
Emerging Markets, Asia
Pan Yue

United Overseas Bank opened Singapore's local currency market for the year with a S$850m (US$640m) perpetual non-call five Additional Tier 1 bond priced on January 12.

The bonds were sold at par to yield 5.25%, almost flat to UOB's bonds in the secondary market, said a source familiar with the situation.

The Singaporean lender enjoyed ample liquidity.

"We feel there's a lot of anticipation from the Sing dollar market," said the source. "With so many US dollar deals from Asia in the past two weeks, key banks in the country are getting calls from investors asking for Sing dollar deals."

With the demand there, UOB decided to take the advantage of the positive market conditions to become the first issuer to come out in 2023.

“We are pleased to kick-start the year in the SGD bond market with our SGD AT1 issuance," said Koh Chin Chin, head of global treasury and research at UOB, in a press release. "With rising global yields, household names with strong credit, such as UOB, become even more attractive, which drove the strong demand for our deal."

The transaction was anchored by private banks, which are looking for good credits with juicy yields amid rising global rates. Private banks and securities houses were allocated 85% of the bonds, fund managers and insurance companies 13%, and banks, and hedge funds and corporates 2%.

With private banks anchoring the deal, UOB announced the transaction on January 12 directly at final guidance, which was unchanged at final pricing. The source said the approach, uncommon in the domestic market, allowed the bank to focus on bookbuilding without worrying about order attrition due to price tightening.

Orders came in quickly, and by lunchtime exceeded S$1bn. The final book reached S$2.1bn from more than 62 accounts, representing subscription of 2.5 times.

The notes will be rated Baa1/BBB+ (Moody's/Fitch), and the first call date is January 19 2028. If the bonds are not called then, the coupon will reset every five years to the initial spread of 239.3bp plus the then-prevailing SORA-OIS.

UOB was the sole global coordinator and bookrunner.

Bankers are hoping UOB's successful transaction will revive the local currency bank capital market. A flurry of foreign banks sold Singapore dollar-denominated AT1 or Tier 2 bonds between June and July last year, but the market slowed down quickly after those deals soaked up most of the liquidity available at that time.

"Hopefully this year will have a similar pipeline as last year," said the source. "Sing dollar is a good alternative for global bank issuers."

Some are expecting Singaporean banks' refinancing needs to feed supply this year. DBS called its S$250m 3.8% subordinated 2028 bond on January 20, and OCBC's S$1bn 4% perp non-call five-year has its first call date this August.

But European banks, with a large amount of bank capital deals outstanding, offer little visibility over their refinancing plans, said a syndicate banker.

"Last year, the Sing dollar market brought arbitrage opportunities for European banks, but now the US dollar and European yields have ratcheted up. It's not as clear as previously," said the banker. He said the difference of funding costs between euro and US dollar versus Singapore dollar has narrowed, which may make the Singaporean market less attractive than last year.

Another challenge is the rising cost of funding, especially for private bank clients, who tend to buy with leverage. The second banker said the cost of leverage for private bank clients is in the high 4% to mid 5% range, meaning if issuers want to tap into all liquidity pockets to achieve a big size, a juicy yield needs to be offered.

"The outlook for this year really boils down to the overall attractiveness of Sing dollar for European and US banks," said the banker.