UOB hits tight, diversifies bid in $650m AT1

United Overseas Bank (UOB) sold its latest Additional Tier 1 (AT1) transaction outside its domestic currency on 11 October, a US$650m perpetual non-call six transaction that achieved the tightest ever re-offer spread for such an instrument, while offering the issuer the opportunity to diversify its investor base.

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The Singaporean bank had not tapped the US dollar market with a Tier 1 issue since 2005 and its only two AT1s outstanding are denominated in Singapore dollars.

A key reason for the US dollar issue was UOB’s focus on investor diversification. The strategy paid off as UOB placed 66% of the paper with asset managers, versus 16% to private banks – which have been particularly prominent in UOB’s Singapore dollar issuance, while insurance companies and pension funds took 14%, and banks 4%. Asia was allocated 72% of the Reg S issue, Europe 26%, and offshore US 2%.

The strategy behind the deal also took into account feedback gleaned from investors in multiple investor meetings in recent years.

“UOB’s latest Tier 1 offering in the international US dollar market is significant as it reinforces our commitment to engaging investors from various markets and jurisdictions,” said Chin Chin Koh, head of central treasury unit, UOB “We chose to enter the market now taking into account the demand and preference from European and Asian investors for international subordinated debt from high quality issuers. The four-times subscription level reflects investors’ confidence in UOB’s strong balance sheet and sound business fundamentals.

“We decided on the PerpNC6 structure as it is in line with our strategic objective of staggering UOB’s bond maturity profile,” she added. “It also provides a more attractive yield to investors via a longer call-date instrument.”

The Baa1/BBB (Moody’s/Fitch) rated US$650m (SGD885m, EUR553m) perpetual non-call five issue was priced at 3.875%, following initial price guidance of the 4.15% area, giving UOB (Aa1/AA-/AA-) the lowest coupon of any US dollar AT1 this year. The re-offer spread of 179.4bp over mid-swaps is the tightest ever on a dollar AT1, although a DBS perpetual non-call five AT1 priced in August 2016 achieved a lower, 3.6% coupon.

Vincent Hoarau, head of FIG syndicate at Crédit Agricole CIB, said the issuer’s approach paid off.

“UOB managed to achieve the tightest re-offer spread for a Basel III-compliant AT1 in US dollars at the same time as expanding its funding franchise, as investors seized the opportunity to diversify their portfolios and gain exposure to a rare Singapore hybrid capital instrument,” he said. “The choice of tenor seems to have been decisive, too, with the unusual perpetual non-call six maturity structure avoiding clashing with the crowded 2022 spot.”

UOB aims to have a regular presence in the international markets in order to make investors’ interest in the credit worth their while.

The proceeds of the AT1 are earmarked for refinancing. UOB has a SGD850m Singapore dollar AT1 callable next July.