UOB prices Singapore's first capital securities with reset coupon rate that references SORA Overnight Indexed Swap rate

UOB announced on Jan 8 that it has successfully priced Singapore’s first capital securities with a reset coupon rate that references the Singapore Overnight Rate Average Overnight Indexed Swap (SORA-OIS) rate.

The reset coupon rate of UOB’s perpetual, non-call five year additional Tier 1 (AT1) securities on the first call date will reference the five-year SORA-OIS rate instead of the five-year Swap Offer Rate (SOR) interest rate swap (IRS) that had served as the benchmark reference rate in the market.

The securities are priced at a coupon of 2.25% per annum, 181 basis points above the prevailing five-year SORA-OIS as at Jan 7.

The bank says its latest AT1 securities with a transaction size of $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 lead manager of the issuance.

SORA had previously been identified by the Association of Banks in Singapore (ABS) and Singapore Foreign Exchange Market Committee (SFEMC) as the rate to replace SOR in the SGD cash and derivatives market.

This will see liquidity in the SGD interest rate derivatives market 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.

On Aug 30, 2019, the Monetary Authority of Singapore (MAS) announced the establishment of the steering committee, where the committee will oversee an industry-wide interest rate benchmark transition from SOR to SORA.

On the issuance of the notes, Lee Wai Fai, UOB's group chief financial officer says, “2021 is an important year in Singapore’s transition to a SORA-centered interest rate market and UOB is pleased to be the first issuer to reference SORA for a capital security. This transaction is another step to encourage the use of the new benchmark rate for pricing in the SGD bond market as part of broader industry efforts to develop deep and robust SORA-based cash and derivative markets. As the industry progresses on the transition to SORA, we will continue to step up our efforts and play our part in expanding the use of SORA across more financial products.”

Shares in UOB closed 64 cents higher or 2.8% up at $23.20 on Jan 7.