NTUC Income to issue S$800m in 30-year subordinated notes

NTUC Income Insurance Co-operative will issue at par S$800 million worth of 30-year Tier 2 subordinated notes on July 20, 2020.

The notes are NC20, which means they cannot be redeemed before the 20-year mark. 

NTUC Income may redeem them in whole on the first call date and every interest payment date thereafter, subject to approval by the Monetary Authority of Singapore.

The coupon is set at 3.1 per cent per annum until the first call date of July 20, 2040, when it will then reset to the then-prevailing 10-year Singapore dollar swap offer rate plus the initial margin of 204.2 basis points, with no step up.

NTUC Income will issue the notes under its S$2 billion euro medium-term note programme dated July 2.

The Singapore insurance cooperative plans to use the issuance proceeds for general corporate purposes, and to fund working capital and future growth plans.

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DBS Bank was the sole global coordinator for the deal. The joint lead managers and bookrunners were DBS Bank Ltd (B&D) and Standard Chartered Bank.

The books saw orders totalling more than S$2.4 billion from 100 accounts, according to deal statistics seen by The Business Times. Three quarters of these came from insurance firms, fund managers and agencies, while 19 per cent were from private banks and 6 per cent were from banks.

By geography, 94 per cent of the investor interest in the notes originated from Singapore.

S&P Global Ratings on Monday affirmed its AA- long-term local-currency insurer financial strength and issuer credit ratings on NTUC Income, with a stable outlook. The ratings agency also affirmed its A+ long-term issue rating on the Singapore-based composite insurer's existing subordinated debt.

For the new S$800 million callable subordinated notes, S&P has assigned the deal an A long-term issue rating. This rating is subject to S&P's review of the final issuance documentation.

"The affirmation reflects our expectation that NTUC Income, through its majority owner NTUC Enterprise Co-operative, will benefit from extraordinary support from the Singapore government," the ratings agency said in a press statement on Monday.

"NTUC Income benefits from very strong political and social relationships with the Singapore government and serves an important role of providing social benefits and cost-effective insurance to the public," it added.

S&P noted that the ratings also reflect NTUC Income's solid business position within the Singapore insurance market, where it operates as one of the largest life and property and casualty insurance providers.

The latest subordinated hybrid issuance will help restore NTUC Income's capital buffers, which have been dented by volatile capital market conditions, although its heightening financial obligations will weaken its credit profile, according to S&P.

As a result, S&P revised its assessment of NTUC Income's standalone credit profile to a- from a.

"In our view, the increasing use of financial leverage strains NTUC Income's funding capacity and flexibility to withstand stress. We now expect the insurer's ratio of financial obligations to earnings to increase beyond our threshold of four times over the next two years. 

"Recent investment market volatility has dented NTUC Income's modest earnings. We expect a slowing economy and still volatile equity markets will continue to impede the insurer's earnings over the next 12-24 months," the agency said on Monday.

Read more: NTUC Income's S$800m, 30-year notes heavily subscribed