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05-07-2012, 07:44 AM
The Straits Times
Jul 5, 2012
OCBC Bank plans $1b preference share sale
Sources say coupon rate is about 4% and minimum tranche is $250,000
By Magdalen Ng
OCBC BANK plans to sell $1 billion worth of preference shares to major investors in the next few days to shore up liquidity.
Industry sources say the bank will be offering a coupon rate of about 4 per cent that will be paid twice-yearly.
The payout is non-cumulative, which means that if the bank does not pay dividends this year, it is not obliged to make it up the following year. The shares will be callable after 5 1/2 years.
This placement will be offered only to institutional investors and sophisticated investors, with a minimum tranche of $250,000.
One reason OCBC may want to issue preference shares now could be to further strengthen its Tier 1 capital adequacy ratio (CAR), a financial buffer required by the authorities.
As of March 31, OCBC's Tier 1 CAR was 14.7 per cent, well above the 6 per cent required by the central bank.
However, under the new Basel III rules taking effect from Jan 1 next year, preference shares with a mandatory coupon will no longer qualify as Tier 1 capital.
OCBC declined to comment.
CIMB head of research Kenneth Ng said OCBC could be 'trying to lock in liquidity when the market is still open'.
The last time a local bank issued preference shares was in 2010, when DBS Bank offered $1.7 billion worth of preference shares to institutional investors and $800 million worth of preference shares to retail investors in two separate issues.
Those shares paid a dividend of 4.7 per cent a year for 10 years. As of yesterday, DBS preference shares were trading on the Singapore Exchange at $102.8, which would give a yield of 4.29 per cent.
OCBC's last preference share issue was in 2008. Those shares were available to retail investors as well, and the bank raised $1.5 billion at a coupon rate of 5.1 per cent. Payouts are made twice-yearly, in March and September, for the first 10 years until Sept 20, 2018.
Preference shares have been popular with retail investors for their regular returns and reputation for being safe. When DBS did not offer a retail tranche initially, many retail investors complained about being excluded.
Given current low interest rates, OCBC's promise of a dividend of around 4 per cent may seem attractive to investors, but experts have cautioned that preference shares are riskier investments than fixed deposits or bonds.
Preference shareholders rank lower than bank deposits, interbank borrowings and other creditors, including holders of subordinated debt, in terms of payment priority.
This means that they will be among the last to get paid, but ahead of ordinary shareholders, should the bank go under.
songyuan@sph.com.sg
Jul 5, 2012
OCBC Bank plans $1b preference share sale
Sources say coupon rate is about 4% and minimum tranche is $250,000
By Magdalen Ng
OCBC BANK plans to sell $1 billion worth of preference shares to major investors in the next few days to shore up liquidity.
Industry sources say the bank will be offering a coupon rate of about 4 per cent that will be paid twice-yearly.
The payout is non-cumulative, which means that if the bank does not pay dividends this year, it is not obliged to make it up the following year. The shares will be callable after 5 1/2 years.
This placement will be offered only to institutional investors and sophisticated investors, with a minimum tranche of $250,000.
One reason OCBC may want to issue preference shares now could be to further strengthen its Tier 1 capital adequacy ratio (CAR), a financial buffer required by the authorities.
As of March 31, OCBC's Tier 1 CAR was 14.7 per cent, well above the 6 per cent required by the central bank.
However, under the new Basel III rules taking effect from Jan 1 next year, preference shares with a mandatory coupon will no longer qualify as Tier 1 capital.
OCBC declined to comment.
CIMB head of research Kenneth Ng said OCBC could be 'trying to lock in liquidity when the market is still open'.
The last time a local bank issued preference shares was in 2010, when DBS Bank offered $1.7 billion worth of preference shares to institutional investors and $800 million worth of preference shares to retail investors in two separate issues.
Those shares paid a dividend of 4.7 per cent a year for 10 years. As of yesterday, DBS preference shares were trading on the Singapore Exchange at $102.8, which would give a yield of 4.29 per cent.
OCBC's last preference share issue was in 2008. Those shares were available to retail investors as well, and the bank raised $1.5 billion at a coupon rate of 5.1 per cent. Payouts are made twice-yearly, in March and September, for the first 10 years until Sept 20, 2018.
Preference shares have been popular with retail investors for their regular returns and reputation for being safe. When DBS did not offer a retail tranche initially, many retail investors complained about being excluded.
Given current low interest rates, OCBC's promise of a dividend of around 4 per cent may seem attractive to investors, but experts have cautioned that preference shares are riskier investments than fixed deposits or bonds.
Preference shareholders rank lower than bank deposits, interbank borrowings and other creditors, including holders of subordinated debt, in terms of payment priority.
This means that they will be among the last to get paid, but ahead of ordinary shareholders, should the bank go under.
songyuan@sph.com.sg
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