United Overseas Bank to raise $850 million in perpetual capital securities

A man passes a logo of United Overseas Bank (UOB) in the Central Business District in Singapore. UOB will be issuing perpetual capital securities to raise $850 million. -- FILE PHOTO: REUTERS
A man passes a logo of United Overseas Bank (UOB) in the Central Business District in Singapore. UOB will be issuing perpetual capital securities to raise $850 million. -- FILE PHOTO: REUTERS

United Overseas Bank (UOB) will be issuing perpetual capital securities to raise $850 million.

The securities are expected to be issued on July 23 and the funds raised will be added to UOB's Tier 1 capital, the bank said on Tuesday.

This is the first time that an Asian bank is raising tier 1 capital under the Basel III banking framework, which took effect at the start of this year.

Under the new rules, debt instruments used to raise Tier 1 capital must have a loss absorption clause so that a bank's debtholders will have to take a "haircut" on their investment if the bank enters a credit crisis.

This means that if UOB were to enter such a crisis, holders of these capital securities may have to accept lower payouts or forgo them altogether.

The proposed offering was 2.35 times subscribed by about 80 high-quality fixed-income investors. The securities were distributed 93 per cent into Singapore and 7 per cent abroad.

Private banks were the bulk of the investors, while others included insurance firms, fund managers and public sector entities.

The securities, which will be issued at denominations of $250,000, have a fixed distribution rate of 4.9 per cent a year.

They can be redeemed by UOB on July 23, 2018, also known as the first call date.

The rate is subject to a reset on the first call date and every five years thereafter to a rate equal to the prevailing five-year Singdollar swap offer rate plus 3.195 per cent.

The distributions are payable semi-annually and are non-cumulative. This means that distributions which are not paid will not accumulate or compound.