UOB Prices Capital Securities Using SORA
In this article (5)
The bank has become the first issuer to reference the Singapore Overnight Rate Average Overnight Indexed Swap (SORA-OIS) rate for a capital security.
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 that had been the benchmark reference rate in the market, the bank said in a statement on Friday.
The issuance will further encourage the use of the new benchmark rate for pricing in the Singapore dollar bond market as part of broader industry efforts to develop deep and robust SORA-based cash and derivative markets, UOB said.
Priced at a coupon of 2.25 percent per annum, 181 basis points above the prevailing five-year SORA-OIS as at 7 January 2021, UOB’s latest AT1 securities with a transaction size of S$150 million ($113.26 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.
The transition from SOR and SIBOR to SORA, a transaction-based interest rate benchmark underpinned by the SGD overnight interbank funding market, is aligned with the development that risk-free rates are being used across the global markets as new benchmark rates for financial 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, Lee Wai Fai, UOB chief financial officer, said in the statement.
Questions & Answers
Q.What kind of securities did UOB price using the SORA-OIS rate?
What kind of securities did UOB price using the SORA-OIS rate?
UOB priced its perpetual, non-call five-year additional Tier 1 (AT1) securities using the SORA-OIS rate. These capital securities had their reset coupon rate linked to the new benchmark.
Q.What was the previous benchmark rate for these types of securities?
What was the previous benchmark rate for these types of securities?
The previous benchmark reference rate in the market for these types of securities was the five-year Swap Offer Rate (SOR) interest rate swap. UOB has transitioned from this to SORA-OIS.
Q.What is the purpose of transitioning to SORA as a benchmark rate?
What is the purpose of transitioning to SORA as a benchmark rate?
The transition to SORA aims to develop deep and robust SORA-based cash and derivative markets. It aligns with the global trend of using risk-free rates as new financial market benchmarks.
Q.What was the initial coupon rate and transaction size for these AT1 securities?
What was the initial coupon rate and transaction size for these AT1 securities?
The AT1 securities were priced at an initial coupon of 2.25 percent per annum. The transaction size for this issuance was S$150 million.
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