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NOT LEFT OUT: OCBC's preference share offer is likely to come with a lower dividend rate than the DBS securities. However, sources say retail investors will be able to take up OCBC's offer. DBS' recent $1.5 billion preference share issue was open only to institutional investors. -- BT FILE PHOTO
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OCBC Bank is planning to issue as much as $1 billion of securities known as preference shares - and retail investors may get a big bite of the offering, sources say.
Unlike DBS Bank's recent $1.5 billion preference share issue, which was open only to institutional investors, OCBC does not intend to leave small investors out in the cold.
Sources from investment banking circles told The Straits Times last Friday that OCBC was seeking approval from the Monetary Authority of Singapore, as well as the Singapore Exchange, for its preference share issue.
DBS priced its offering earlier this month at $250,000 per lot.
The low interest rate environment in Singapore is prompting investors, wary of putting cash into rocky share markets, to seek higher-yield instruments.
This is an 'opportune time for banks like DBS and OCBC to tap the strong demand for relatively safe investment instruments with respectable yields, given the volatile equity markets and cash-rich institutional and retail investors out there', said a banker.
Indeed, the attractive 5.75 per cent dividend for the first decade dangled by DBS ensured that the bank's issue was greatly oversubscribed. Retail investors, however, could only look on forlornly.
The OCBC offering is likely to come with a lower dividend rate than the DBS securities. Still, the yield will 'look great next to the 0.25 per cent rates on Singapore savings accounts', said one source.
OCBC may be raising cash to strengthen its tier one regulatory capital base, which is used as a buffer against the loans it issues, said a banker not connected to the deal.
The capital-raising exercise will also help it to expand its loans book over the next few years in Singapore, as well as in China, Malaysia and Indonesia, he added.
As at end-March, OCBC had a tier one capital ratio of 12.2 per cent, while DBS had 9.2 per cent. United Overseas Bank (UOB) had 9.9 per cent.
'Given that even OCBC is jumping in to raise capital when it already has the highest tier one capital ratio of the three local banks, it's anyone's guess whether UOB may also go down this route,' said a market watcher.
If OCBC's proposed preference share offering does get the regulatory green light, it will not be the first time that the bank has reached out to retail investors.
In 2003, it responded to feedback that less wealthy investors were eager to tap preference shares after an earlier offer it made to sophisticated investors.
OCBC priced a preference share offering in lieu of a special cash dividend to shareholders at about $1,000 per lot, with a 4.2 per cent dividend yield.
'But the proposed OCBC offering is likely to be priced much higher than that,' said a source, without giving details.
Retail investors are attracted to preference shares because of the relatively high dividend rates.
But bankers warn that the investment is not risk-free.Preference shares rank below bank deposits, interbank borrowings and other senior debts in terms of priority of payment.
So if a bank goes belly up, preference share holders are among the last to get paid. That is why preference shares pay dividend rates much higher than the rates on fixed deposits, which are relatively risk-free.
graceng@sph.com.sg
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