United Overseas Bank 5.25% Perp AT1 SGD

Shawn Sng  |   20 Jan 2023  |    312 views

Tags: U1MA

United Overseas Bank has just announced the issuance of NC5 AT1 subordinated notes at 5.25%. These bonds will only be callable after 5 years, and if these bonds are not redeemed by the bank on the fifth year mark (19 January 2028), the fixed distribution of the bonds will be reset at the first reset date and every 5 years thereafter at the prevailing 5-year SORA-OIS plus the initial spread of 2.393%. However, do note that these bonds come with a loss absorption feature. If a loss absorption event were to be triggered, the issuer will have the rights to cancel the accrued distributions and if deemed insufficient, a permanent write-down (partial or in full) of the prevailing principal amount is also possible. These bonds come with a semi-annual coupon payment scheduled on every (19 January) and (19 July) each year, with the first coupon payment being paid out on (19 July 2023). The proceeds from this issuance will be used for refinancing purposes and general corporate use. The expected rating for this issuance is Baa1/BBB+ (Moody’s/Fitch).

 

Company background

United Overseas Bank (UOB) is a leading bank in Asia with a global network of around 500 branches and offices across 19 countries and territories in Asia Pacific, Europe and North America. It is also a multinational banking corporation headquartered in Singapore. The group operates in 3 major segments: Group Retail (“GR”) which encompass a diverse range of products and services for individual customers; Group Wholesale Banking (“GWB”) that consists of products for corporate and institutional clients segment; and lastly, Global Markets (“GM”), that provide a suite of treasury products and services across multi-asset classes. UOB was listed on SGX-ST on 20th July 1970 (ticker: U11.SI) and has a market capital of $50.39bn as of 11 Jan 2023.

 

3Q2022 Financials

In 3Q2022, UOB’s net profit was up 34% Y.o.Y at $1.4bn. This was driven by strong Net Interest Income (NII) which was up 39% Y.o.Y. The growth in NII was led by an increase of 40bps in Net Interest Margin (NIM) and 6% loan growth. Other non-interest income also surged 58% largely coming from higher customer-related treasury income. However, lower wealth and fund management fees caused Net fee and commission income to decline by 10%. Although total operating expenses were 27% higher, it was in line with higher income. In terms of Asset quality, the Non-Performing Loans (NPL) ratio was also showing signs of improvement, as it went down from 1.7% to 1.5% in 3Q2022. This has also improved the groups’ credit cost from 22 to 17bps.

 

With regard to its credit position, the groups’ liquidity and funding positions also strengthened in 3Q2022 with its liquidity coverage ratio (LCR) at 142%, and net stable funding ratio at 114%. UOB’s CET1 ratio eased from 13.1% to 12.8% which was largely due to interim dividends for 2022. But this is well above the minimum regulatory requirements and is in line with the other 2 local banks (OCBC – 14.4%, DBS – 13.8%). The group also maintained its strong reserve buffer with prudent coverage for performing loans maintaining it at 0.9%, while Non-performing asset (NPA) coverage remained adequate at 98%, or 207% after taking collateral into account.

 

For clients who have exposure worries, UOB’s mainland China exposure stands at $23.1bn, or 5% of total assets, of which $7.7bn is bank exposure and $12.2bn is non-bank exposure. While the top 5 domestic banks and 3 policy banks account for 60% of total bank exposure, the non-bank exposure’s client base includes top-tier state-owned enterprises, large local corporates, and foreign investment enterprises. Thus with low borrower concentration, the NPL ratio is low at 0.4%.

UOB is a local brand name with a healthy financial outlay, and this is coupled with adequate buffers, which are in line with its peers. So, this new issuance will definitely pique the interest of investors who prefer local banks. 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 in our POEMS platform to get hold of them. These notes can be transacted in a minimum lot size of $250K.

 

Related Articles

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

?>