United Overseas Bank (UOB) on April 7 priced a dual-tranche offering totalling US$1.5 billion, representing the first sustainability bond offering from Singapore and the first dual-tranche senior and tier-2 instrument in sustainability format globally from a bank issuer.
The Reg S/144A issuance was equally split at US$750 million each, comprising of five-year senior fixed-rate sustainability notes, which were priced at 99.585% with a coupon of 1.25% per annum. The other tranche was a 10.5-year non-call 5.5-year tier-2 subordinated sustainability notes, which were priced at 99.555% with an interest rate of 2% per annum. If the subordinated notes are not redeemed or purchased and cancelled on the first call date, the interest payable shall be reset to a fixed rate per annum equal to the then prevailing five-year US treasury rate plus the initial spread of 1.23%.
The subordinated notes are intended to qualify as tier-2 regulatory capital of the bank. They may be written down, in whole or in part, and any accrued and unpaid interest may be cancelled by the bank upon the occurrence of a loss absorption event. This loss absorption event is the earlier of the Monetary Authority of Singapore (MAS) notifying the bank in writing that it is of the opinion that a write-down is necessary or of its decision to make a public sector injection of capital, in each case without which the bank would become non-viable as determined by the MAS.
The deal is UOB’s inaugural issuance under its sustainable bond framework launched in March this year. The framework is part of the bank’s larger sustainability agenda that is embedded into its business strategy and integrated into its lending policy. The proceeds will be used to finance or to refinance eligible businesses and/or projects in areas such as green buildings and renewable energy, as well as eligible social assets. These include Covid-19-related temporary bridging loans extended to small businesses in Singapore to help them sustain employment and to tide over the challenges from the pandemic.
Commenting on the transaction, UOB deputy chairman and chief executive officer Wee Ee Cheong says the bank’s sustainable financing solutions are integral to how it helps businesses across the region advance responsibly. “This structural approach is driven by our sustainable finance frameworks, which encourage the development of smart cities, green buildings and the circular economy in alignment with Asean governments’ focus on addressing rapid urbanization and increasing infrastructure demand,” he adds.
The offering achieved a comprehensive investor reach and participation across Asia-Pacific, Europe and the United States. The debut sustainability format of the dual-tranche issuance also benefited from the strong support from sustainability-focused investors, who contributed 60% to the final orderbook, which amounted to US$2.75 billion from 149 accounts.
In terms of geographical distribution, 60% of the tier-2 bonds were sold in the US, 25% in Asia and 15% in Europe. By type of investors, fund managers accounted for 63%, insurance companies and pension funds 30%, public sector entities 4%, and banks and private banks 3%.
For senior notes, 44% each of the paper was allocated in the US and Asia, while the remaining 12% was distributed in Europe. They were bought by banks 38%, fund managers 35%, corporates 13%, public sector entities 11%, insurance companies and pension funds 2% and private banks 1%.
UOB’s sustainability bond offering will be drawn under its US$15 billion global medium-term note programme. BNP Paribas, HSBC, Societe Generale and UOB were the joint lead managers and bookrunners for the transaction, with Bank of China acting as co-manager.
The UOB sustainable bond framework is in line with the International Capital Market Association’s (ICMA) Green Bond Principles, Social Bond Principles and Sustainability Bond Guidelines, as well as the Asean Green Bond Standards, Social Bond Standards and Sustainability Bond Standards. Sustainalytics is the second-party opinion provider.