OCBC reopens
Singapore AT
Bonds Private bank investors snap up first bank hybrid in
over a yearBY KIT YIN BOEYOVERSEA-CHINESE BANKING CORPORATION
tapped into pent-up demand
from Singapore’s private banking
community last Thursday with
the city’s first sale of Additional
Tier 1 capital in over a year.
OCBC, rated Aa1/AA–/AA–, sold
S$1bn (US$727m) of perpetual
non-call five notes at par to yield
4%, inside initial price guidance
of 4.375% area.
The non-cumulative and
non-convertible issue is the first
Singapore dollar AT1 issue since
HSBC Bank’s S$1bn 4.7% offering
last June.
Bankers expect the deal to
revive interest in Singapore
hybrids among international
issuers, particularly among
European banks looking to
diversify their funding sources.
“This is the right name to
open the market to Singapore
dollar AT1 deals,” said a syndicate
banker. “This is not to say the
market is fully back to bullish
conditions, but well-known
names such as Singapore banks
and European banks with a
strong private-banking following
in Asia will have a better chance
at doing a deal.”
The OCBC AT1 issue pulled in
a final order book of over S$3bn,
showing some slight attrition
from a peak of S$3.2bn after
pricing was tightened to 4% for a
spread of 181.1bp over Singapore
dollar SOR.
Insurance and fund managers
bought 35% of the deal, while
agencies, banks, hedge funds
and corporate investors took
5%. The remaining 60% went to
private bank investors. Singapore
accounted for 93% with foreign
investors taking 7%.
“The healthy demand from
PBs is a good sign that they are
ready to return to the bond
market after staying away for
a few months,” said one DCM
banker. “Hopefully, the PB bidwill build on this momentum
and in turn allow other deals
come to the bond market.”
Bankers, however, stress that
the market remains shut to
high-yield credits and that only
high-grade names will see good
demand for their subordinated
debt.
Credit Suisse , OCBC and Standard
Chartered were joint lead
managers and bookrunners.
A banker on the deal played
down the impact of global
market volatility.
“There were a couple of
factors that came together for
the OCBC deal, despite the
volatility from the Turkish lira
fallout,” said the lead manager.
“There has been no AT1 issue in
Singapore for over a year, and
there is pent-up demand for
household names such as OCBC.”
In addition, OCBC is due
to redeem S$1.5bn of 5.1%
preference shares that are
callable on September 20,
following a S$850m hybrid
redemption from UOB in July
and a S$200m corporate hybrid
from SembCorp on August 23.
This meant that more investors
were seeking replacement assets.
This is the Singapore bank’s
second AT1 deal under the Basel
III regime, following a S$500m
perpNC5 at 3.8% in April 2015.
The new notes, to be rated
Baa1/BBB-/BBB, will be written
down in part or in full if the
Monetary Authority of Singapore
notifies the issuer that a write-
off is necessary, or if the central
bank decides that the issuer
needs an injection of public
sector funds.
The coupon will reset in
year five and every five years
thereafter to the prevailing five-
year SOR plus the initial credit
spread of 181.1bp.
Settlement is on August 24
and the notes will be drawn
from a US$30bn global MTN
programme. For daily news stories
visit http://www.ifrasia.comCommercial Bank and Standard
Chartered Bank will reprise their
roles from the March deal as
leads. The banks are believed
to be underwriting a large
portion of the bonds.
“We took into consideration
in the last deal that some
institutional investors,
especially the government-
owned pension funds, cannot
invest in liquor assets,” said a
banker on the deal. “The same
will apply in this case but we
will have to work ever harder
to meet the larger target size.”
Tenors of two years to 10
years are being explored with
bookbuilding tentatively
scheduled for early September,
when no other large bond
offerings are currently planned.
At a minimum size of
Bt70bn with an undetermined
greenshoe, the new deal will
surpass the largest corporate
offering from Berli Jucker,
which raised Bt54bn in August
2016 to support its acquisition
of Big C Supercenter.
SABECO STAKE
Proceeds from the new offering
will refinance US$5bn of
bridge loans backing ThaiBev’s
US$4.84bn acquisition of a
53.59% stake in Vietnam’s
Saigon Beer-Alcohol-Beverage
Joint Stock Corporation
(Sabeco), which produces
Saigon Beer and 333.
The bridge loans, including a
US$1.95bn 12-month bank loan
obtained from Mizuho Bank
and Standard Chartered, were
extended in January this year.
The purchase of Sabeco had
prompted rating agencies to
downgrade ThaiBev’s corporate
ratings. Moody’s demoted
ThaiBev in February from
Baa2 to Baa3 with a negative
outlook, citing a “signficant
shift in the company’s financial
risk appetite”, while Tris
lowered its rating to AA from
AA+.
Financial results released
last week for the third quarter
ending June 30 2018 saw
earnings fall 61% year-on-year
while core profit eased 11% to
Bt6bn, despite a 34.1% rise in
group revenues to Bt60.7bn
following Sabeco’s inclusion.
Despite the weak results,
several equity analysts have a
buy recommendation on the
company as they believe that
Sabeco’s business will be a
long-term positive addition to
the group. in the country and taking the
burden off the government’s
balance sheet.
These concerns prompted
rating agency Marc on May 30
to place M$33bn of Islamic and
conventional bonds from 10
toll road concessionaires on its
watchlist.
The government’s move
to delay the toll removal is
due mainly to avoid a hefty
compensation bill for existing
concession holders of more than
M$400bn - a cost it can ill afford.
This could have put immense
pressure on the government’s
financial reserves, particularly
since it recently fulfilled another
election promise to abolish the
goods and services tax, a key
source of revenues. The GST
had contributed about M$21bn
in revenues to the government
and its replacement, a Sales and
Service Tax, is forecast to raise
much less.
After inheriting a debt burden
of over M$1trn, the government
has been attempting to
aggressively scale back massive
infrastructure projects but is
finding it hard to break contracts
signed under the previous
administration.
Prime Minister Mahathir
Mohamad has already been
forced into a U-turn on plans
to cancel the Kuala Lumpur-
Singapore high-speed rail link.
Instead, Mahathir suggested
in June that the project be
postponed after the government
estimated compensation costs to
Singapore would be too high if
the project were to be cancelled.
The Malaysian government
is now seeking to lower an
estimated project cost of over
M$100bn, and to begin formal
talks with its counterparty in
Singapore to defer the project.