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.


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