United Overseas Bank Limited (“UOB”) announced the bank will be issuing tier 2 USD subordinated notes at an initial price guidance (“IPG”) of CT5 + 185 basis points (“bps”).
The tenor of the notes will be 10.5 years and new issue will not be callable for 5.5 years, after which UOB have the option to call the notes on its call date on September 2027.
Proceeds from the new issue will be used for general corporate purposes as per UOB’s USD 30b Global Medium Term Note Programme. The issuer is rated Aa1 (Stable) by Moody’s, AA- (stable) by S&P and AA- (Negative) by Fitch. The expected rating for the tier 2 notes will be A2 (Moody’s), BBB+ (S&P) and A (Fitch).
UOB was founded in 1935 by Datuk Wee Kheng Chiang and a group of businessmen. The present CEO, Mr. Wee Ee Cheong is the grandson of Datuk Wee Kheng Chiang. The group is one of the three domestic systemically important banks in Singapore and has a global network of around 500 branches and offices in 19 countries. As of 31 Dec 2021, UOB had SGD 459b of total assets and SGD 311b of gross customer loans.
For full year financial results ending 31 December 2021 (“FY21”), UOB reported net interest income of SGD 6.4b. Net interest income grew by 6% from the year prior from strong loan growth of 10%. Profit after tax grew by 40% to SGD 4.1b in FY21 due to stronger income growth and lower credit allowance in Singapore.
For FY21, total allowance for impaired and non-impaired assets decreased by 1% to SGD 4.5b. Non-performing loans ratio remained unchanged at 1.6%. UOB’s solvency remained adequate with Common Equity Tier 1 (“CET1”) ratio of 13.5% and Capital Adequacy Ratio (“CAR”) at 16.8% which is well above regulatory requirements by MAS. Liquidity coverage ratio was also above regulatory requirements at 135%. Although CET 1 ratio for UOB fell slightly by 1.2%, the bank still remains well capitalised. We think UOB can continue its strong earnings growth and this may lead to an organic growth in CET1 for the bank.
The new issue has a tenor of 10.5 years and it is callable after 5.5 years on September 2027. If not called, the notes will reset at the prevailing 5 year US Treasury + initial spread. Taking pricing from other tier 2 USD notes from UOB, the UOBSP 2.000% 14Oct2031 Corp (USD) matures in October 2031 and is callable in 4.5 years. The 2.0% 2031 notes is currently trading at an indicative yield to worst (“YTW”) of 3.65%. With a reference rate of ~4.29%, we think that the pricing of this new issue is attractive. As this is a tier 2 note, investors should be aware that the notes come with certain loss absorption features and that the final price guidance for the new bond would likely 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) holds a position in UOBSP 2.550% Perpetual Corp (SGD) and the analyst who produced this report holds a NIL position in the abovementioned securities.
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