Aviva Singlife Holdings Pte Ltd – New 3.75% IPG Tier 2 Bond Issue

Timothy Ang  |   17 Nov 2020  |    186 views

Aviva Singlife Holdings Pte. Ltd. (ASH) has launched a dated callable subordinated note at Initial Price Guidance of 3.75% callable in 5.25 years and maturing in 10.25 years. The Tier 2 capital security will be callable at par in whole at (i) the first call date and (ii) any interest payment date thereafter, or (iii) on the occurrence of a change of qualification event or tax event. The new bond is rated Baa3 by Moody’s and BBB- by Fitch, both investment grade. Net proceeds will be used for funding the merger of Aviva Singapore Ltd and Singapore Life Pte. Ltd. into the proposed Aviva Singlife.

The Issuer

The bond issuer, ASH, is the holding company of Aviva Ltd. and Singapore Life Pte. Ltd. post the merger of the two entities. As of 30 June 2020, total assets and shareholders’ equity of Aviva Ltd. registered SGD11.5 billion and SGD663 million, respectively. On the other hand, the total assets and shareholders’ equity of Singapore Life Pte. Ltd. were $521 million and $114 million, respectively. ASH is 34.6% owned by TPG, 24.9% by Aviva UK, 14.9% by Sumitomo Life, and 25.6% by existing shareholders of Singlife.

The Bond

The new bond is rated Baa3 by Moody’s and BBB- by Fitch, both investment grade and one notch above junk. These are lower ratings than the Baa2 and BBB+ issuer ratings by the respective rating agencies, reflecting the subordination of the bond to senior bonds.

Group Operations

Aviva Singapore has a diversified new business mix with term, critical illness, disability and savings accounted for most of the value of new business (VNB) generated for H1 2020. Aviva Singapore accounted for over 90% of total assets (prior to new capital injections) and net premiums written of the combined group (Aviva Singlife) as of the end of 2019, and will be the key profit contributor to ASH in the near term.

Aviva relies strongly on financial advisory and group or affinity distribution channels. These channels constituted about 74% and 15%, respectively, of Aviva Ltd.’s operations on a standalone basis, in accordance with 2019 annual premium equivalent.

Singlife has a differentiated brand and strong digital capabilities as the first Singapore digital-only insurer established in 2017. Singlife increased its exposure to universal life policies through the launch of Singlife Account, which carries relatively higher interest rate risk and capital charges than other traditional insurance products, although the insurer plans to reduce the crediting rate to alleviate capital consumption.

On 11 September, Singlife announced it will merge with Aviva Singapore and the integration of the two entities expected to be completed over the next 6 to 12 months. Benefits from the merger will be a high degree of management integration and capital fungibility post-merger. Fitch estimates the consolidated operation had a market share of around 7% by total premiums written in 2019, and rank as the sixth largest life insurer in Singapore.

 

Credit View

Positives

+ Stable outlook. Management expects the company’s consolidated financial performance to gradually improve with operational and business synergies. Fitch expects the consolidated operation to maintain a strong capital buffer as a cushion against any unexpected shocks and claims arising from the coronavirus pandemic. Moody’s expects the company to remain well capitalized post-merger, supported by new capital injections from its shareholders to finance the merger.

+ Good asset quality. The combined group’s asset quality is good as most of its risky asset exposure, mainly comprising equities and investment properties, serves to back participating funds in which investment risk can be shared with policyholders. The insurer has very limited risky asset exposure in its non-participating fund and shareholders’ fund.

 

Negatives

– Increase in interest expenses and amortization expenses of intangible assets, arising from value of business acquired at the merger, could result in a higher breakeven point and thus lead to higher accounting earnings volatility in the next two to three years.

– Relatively high pro forma financial leverage at around 30%-35% and low earnings coverage, respectively, as of 2019 on a proforma basis, as a result of the proposed debt issuances to finance the merger. Solid solvency ratio – Aviva Singapore ample dividend capacity to support the debt servicing at the holding company level.

– Structural subordination of Tier 2 security. Creditors of ASH are subordinated to policyholders of Aviva Singapore and Singlife. ASH will be designated by Monetary Authority of Singapore (MAS) as a financial holding company and MAS’ supervision over ASH and its subsidiaries will include capital requirements, risk policies and reporting, corporate governance and key management appointments.

 

Source:

  1. Fitch Assigns Aviva Singlife Holdings ‘BBB+’ IDR, Rates Subordinated Securities ‘BBB-‘ – https://www.fitchratings.com/research/insurance/fitch-assigns-aviva-singlife-holdings-bbb-idr-rates-subordinated-securities-bbb-12-11-2020
  2. Moody’s assigns A3 IFSRs to Aviva Singapore and Singlife and Baa3 rating to the holdco’s proposed subordinated notes – https://www.moodys.com/research/Moodys-assigns-A3-IFSRs-to-Aviva-Singapore-and-Singlife-and–PR_1000003727

Related Articles

Groupe BPCE 5% 10NC5 Tier 2 SGD

Groupe BPCE recently announced the issuance of its 10NC5 Tier 2 notes at a final price guidance of 5%.

Shawn Sng  |   27 Feb 2024

HSBC – Growth supported by higher rates

In FY202, HSBC growth was supported by higher rates and has reported a growth in its revenue of 30% YoY

Shawn Sng  |   23 Feb 2024

UBS Group 5.75% NC5.5 AT1 SGD

UBS Group recently announced the issuance of its NC5.5 Additional Tier 1 perpetual notes at 5.75%.

Shawn Sng  |   16 Feb 2024

Disclaimers


These commentaries are intended for general circulation. It does not have regard to the specific investment objectives, financial situation and particular needs of any person who may receive this document. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person acting based on this information. Opinions expressed in these commentaries are subject to change without notice. Investments are subject to investment risks including the possible loss of the principal amount invested. The value of the units and the income from them may fall as well as rise. Past performance figures as well as any projection or forecast used in these commentaries are not necessarily indicative of future or likely performance. Phillip Securities Pte Ltd (PSPL), its directors, connected persons or employees may from time to time have an interest in the financial instruments mentioned in these commentaries. Investors may wish to seek advice from a financial adviser before investing. In the event that investors choose not to seek advice from a financial adviser, they should consider whether the investment is suitable for them.

The information contained in these commentaries has been obtained from public sources which PSPL has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the "Research") contained in these commentaries are based on such information and are expressions of belief only. PSPL has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in these commentaries are subject to change, and PSPL shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will PSPL be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages. The companies and their employees mentioned in these commentaries cannot be held liable for any errors, inaccuracies and/or omissions howsoever caused. Any opinion or advice herein is made on a general basis and is subject to change without notice. The information provided in these commentaries may contain optimistic statements regarding future events or future financial performance of countries, markets or companies. You must make your own financial assessment of the relevance, accuracy and adequacy of the information provided in these commentaries.

Views and any strategies described in these commentaries may not be suitable for all investors. Opinions expressed herein may differ from the opinions expressed by other units of PSPL or its connected persons and associates. Any reference to or discussion of investment products or commodities in these commentaries is purely for illustrative purposes only and must not be construed as a recommendation, an offer or solicitation for the subscription, purchase or sale of the investment products or commodities mentioned.

Contact us to Open an Account

Need Assistance? Share your Details and we’ll get back to you

IMPORTANT INFORMATION

This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.  

The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

This advertisement has not been reviewed by the Monetary Authority of Singapore.  

 

Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com

?>