AIA 5.1% NC5.5 Perpetual Tier 2 SGD

Shawn Sng  |   05 Sep 2023  |    437 views

AIA Group Limited recently announced the issuance of its NC5.5 Tier 2 perpetual SGD bonds with a final price guidance of 5.1%.  These bonds have the option to be called back on 12 March 2029 which is the 5.5 year with semi-annual coupon payments which are scheduled on 12 March and 12 September each year. If the bonds are not called back on the callable date, the notes will then be reset at the prevailing 5-year SORA-OIS plus the initial margin of 1.865%. The first coupon payment will be paid on 12 March 2024 and these notes have an expected issuance rating of A2 (Moody’s).


The notes are being issued under its US$ 16bn Global Medium Term Note and Securities Programme, and the proceeds arising from this issuance will be used for general corporate purposes. Additionally, deferred coupon payment from this issuance is cumulative and subjected to “Dividend Stopper” and “Dividend Pusher”. This means that in the event that the issuer was to miss a coupon payment, the amount deferred will be paid at the next coupon payment date. Also, the embedded dividend stopper and dividend pusher prohibit the issuer from paying a dividend to shareholders if it does not pay interest to bondholders. While the dividend pusher requires the issuer to pay interest to bondholders if it pays a dividend to shareholders. This is in place to protect bondholders by ensuring that they receive their interest payments even if the issuer is experiencing financial difficulties.


Company Overview

Headquartered in Central Hong Kong, AIA Group Limited is a multinational insurance and finance corporation with a presence in 18 markets such as Hong Kong, mainland China, Taiwan, Macau, South Korea, Singapore, Thailand, Malaysia, the Philippines, Indonesia, Vietnam, Brunei, Cambodia, Myanmar, Australia, New Zealand, Sri Lanka and a 49% joint venture in India. AIA Group Limited as of 30 June 2023 has a total invested assets of US$223.5bn and is listed on the Main Board of the Stock Exchange of Hong Kong Limited under the stock code “1299”. As of 5th September 2023, it has a market capital of HK$803.36bn with a credit rating of A1/A+/AA- (Moody’s/S&P/Fitch).


1H23 Financials

In AIA’s 1H23 financials, the group recorded a 45.6% increase Y.o.Y in its net profit from US$1.54bn in 1H22 to US$2.25bn in 1H23. Additionally, all of its reportable segments and all distribution channels delivered higher Value of New Business (VONB – a measurement of the profitability of its new businesses that was written in a specific period of time) which translates to an increase of 37% YoY from US$1.53bn in 1H22 to US$2.02bn in 1H23. AIA Hong Kong was the largest contributor and more than doubled VONB supported by both our domestic and Mainland Chinese visitor (MCV) customer segments.


In terms of solvency position, AIA still maintained a strong Local Capital Summation Method (LCSM – a risk-based capital framework that is used by insurance regulators in Hong Kong and it’s a measurement of an insurance company’s liquidity risk) of 260% in 1H23 despite it sliding slightly from 283% in FY22. This decline was mainly driven by the effect of the share buy-back, the temporary reduction in eligible group capital resources from internal capital movements, and the refinancing of eligible debt with senior debt.


As per the World Health Organization’s projections, the global population is anticipated to experience increased longevity, with an estimate suggesting that by 2030, approximately one in six individuals worldwide will be 60 years of age or older. This demographic shift is expected to result in a growing number of people seeking a greater focus on their health in the longer term which will be a potential tailwind for the AIA group.  Therefore, for investors who are seeking bonds that yield 5% or more and are keen to have exposure to an insurer group with a good credit rating. I believe this issuance is something one could consider adding to their fixed-income basket.


As the initial offering has closed for subscription, investors who are interested in these notes will have to head onto the bond’s secondary market on our POEMS platform to get hold of them. These notes can be transacted in a minimum lot size of SGD$250K.



Bond Overview

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