Fri, Jan 08, 2021 – 12:33 PM
UOB announced on Friday that it has successfully priced capital securities with a reset coupon rate that references the Singapore Overnight Rate Average Overnight Indexed Swap (Sora-OIS) rate, which is believed to be the first in Singapore.
The bank’s latest issuance is a step forward to promote the adoption of a Sora-based pricing benchmark in the Singdollar bond market, and part of broader industry efforts to develop deep and robust Sora-based cash and derivatives markets.
The reset coupon rate of UOB’s perpetual, non-call five-year additional Tier 1 securities on the first call date will reference the five-year Sora-OIS rate, instead of the five-year SOR interest rate swap (IRS) that had been the benchmark reference rate in the market.
This comes as Singapore is in the midst of its transition from SOR to Sora as the new interest rate benchmark, on the back of the discontinuation of the Libor at end-2021, which would affect SOR as it uses the USD Libor in its computation.
Sora was selected as the new interest rate benchmark as it was found to be the “most robust and suitable alternative”, underpinned by a deep and liquid overnight funding market.
After end-April 2021, Sora is expected to be the de facto floating rate benchmark for all institutional SGD financing activity. With that, liquidity in the SGD interest rate derivatives market will shift over time from SOR IRS to Sora-OIS, with the latter set to replace SOR IRS as the primary reference curve for SGD capital market issuances.
To support the transition, the Monetary Authority of Singapore in June 2020 established a daily auction process to facilitate price discovery in Sora-OIS. The use of Sora-OIS as a reference rate for pricing of SGD bonds will contribute to the further deepening of the liquidity of the Sora-based derivative market.
Priced at a coupon of 2.25 per cent per annum, 181 basis points above the prevailing five-year Sora-OIS as at Jan 7, 2021, UOB’s latest additional Tier 1 securities with a transaction size of S$150 million were subscribed by high-net-worth and institutional investors. If the bonds are not redeemed in 2026, the coupon will be reset based on 181 basis points above the five-year Sora-OIS on the first call date.
UOB was the sole bookrunner and sole lead manager of this perpetual issuance.
Lee Wai Fai, group chief financial officer, UOB, said: “2021 is an important year in Singapore’s transition to a Sora-centred interest rate market and UOB is pleased to be the first issuer to reference Sora for a capital security.”
He added that as the industry progresses on the transition to Sora, the bank will continue to step up efforts and expand the use of Sora across more financial products.
The transition from SOR and Singapore Interbank Offered Rate to Sora is in line with global reform efforts to improve the robustness and integrity of financial benchmarks. A Sora-centred interest rate market aims to avoid market segmentation, facilitate transparency and easier comparison of pricing, and promote the development of deep and efficient SGD financial markets.