Barclays PLC (“Barclays”) announced that the bank will be issuing a NC5.5 subordinated perpetual SGD Additional Tier 1 (“AT1”) notes at an indicative price guidance of 8.60%. The issuer, Barclays PLC, is rated Baa2 (positive) /BBB (positive) /A (positive) by Moody’s/S&P/Fitch. The bond is expected to be Ba2/BBB- by Moody’s and Fitch respectively. The bond is callable from 15 Sep 2027 with the first reset date on 15 Dec 2027. If not called on 15 Dec 2027, the bond will reset at the prevailing 5Y SORA-OIS plus the initial margin. The bond also has a loss absorption feature, where in the event if Barclay’s CET1 ratio falls below 7% threshold, the AT1 notes may be converted into common shares of the bank.
Barclays PLC is a British multinational bank headquarted in London. Barclays is primarily listed on the London Stock Exchange (ticker: BARC) with a secondary listing on the New York Stock Exchange (ticker: BCS) and is a constituent of the FTSE 100 Index. It is also considered as a systemically important bank by the Financial Stability Board.
For the first quarter ended 31 March 2022 (“1Q22”), total income for the bank increased by 10% year-on-year (“yoy”) to GBP 6.5b from GBP 5.9b. In 1Q22, operating expenses increased to GBP 4.1b due to litigation and conduct charges of GBP 523m which includes provisions of GBP 320m from the over-issuance of securities by Barclays Bank PLC in the US. This resulted in cost/income ratio increasing from 61% in 1Q21 to 63% in 1Q22. Earlier this year, Barclays Bank mistakenly issued USD 15b worth of structured notes and exchange-traded notes above the registered volume which resulted in the bank being required to repurchase the affected securities. Barclays have guided for a GBP 450m loss. Barclays has no physical presence and undertakings in Russia, Ukaine or Belarus. The bank has significantly reduced its exposures to Russian counterparties. Gross derivative assets exposure and Nostro exposure is minimal.
In terms of its credit profile, Barclay’s CET1 ratio decreased by 130 basis points to 13.8% (FY21: 15.1%). The decrease was due to the expected impact of regulatory change on 1 Jan 2022 which reduced the CET1 ratio by ~80bps and a further ~30bps reduction due to their GBP 1b buyback announced in FY21. The impact of the over-issuance of securities in the US reduced CET1 ratio by ~20 bps. Nonetheless, we still find Barclay’s solvency profile to be adequate and the higher than average CET1 ratio of 15.1% in FY21, allowed it to withstand impact on its capital and allowed Barclays to still remain comparable to its peers. Barclays in 1Q22 had a liquidity coverage ratio of 159%, above regulatory requirements of 100%. Additionally, the group also has a strong minimum requirement for own funds and eligible liabilities (“MREL”) position of 31.2% which is in excess of regulatory requirements of 28.9%.
Moving on to relative valuation, comparing the Barclays new AT1s with other recent new AT1 SGD issuances from OCBC and UOB, we think at an IPG of 8.60% is much more attractive in comparison. The OCBCSP 3.900% Perpetual Corp (SGD) has an indicative yield to worst of 3.809% callable on 8 June 2027 while the UOBSP 4.250% Perpetual Corp (SGD) has an indicative yield to worst of 4.188% callable on 4 Oct 2027. We find the new issuance priced quite closely to its USD AT1 issuances. When swapped to USD, the new AT1s will have a coupon of ~9.3%. Comparing with the BACR 4.375% Perpetual Corp (USD) with a next call date on 15 March 2028 (YTC: 9.638%) and the BACR 6.125% Perpetual Corp (USD) with a next call date on 15 December 2025 (YTC: 7.993%), we think the new SGD AT1s are priced closely to the yield curve of its USD AT1s. We think in the SGD AT1 space, the new Barclays AT1s are attractive and would be suitable for high yield seekers. Investors should note that the final price guidance may be lower than the initial price guidance.
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) hold a position in UOBSP 4.250% Perpetual Corp (SGD), UOBSP 2.550% Perpetual Corp (SGD), OCBCSP 3.900% Perpetual Corp (SGD) and the analyst who produced this report hold a NIL position in the abovementioned securities.
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