UOB prices landmark US$1.2 billion dual-tranche euro covered bond offering

[SINGAPORE] UOB has priced a one billion euros (US$1.2 billion) dual-tranche euro-denominated covered bond transaction – the first executed by an Asian issuer, said the bank on Thursday (Aug 27).

The bonds were offered under the bank’s US$15 billion Global Covered Bond Programme to capture demand from a broad range of investors while optimising maturity management for the bank.

This also marked the first two-year euro covered bond issuance from an Asia-Pacific issuer since 2023.

The offering generated “exceptionally strong” investor demand, reflecting strong support from high-quality institutional investors, said UOB.

Peak combined order books exceeded 4.25 billion euros within four hours of launch and the final book closed at around 3.9 billion euros, representing an oversubscription of about four times.

This strong demand enabled UOB to tighten pricing from initial guidance, with the two-year tranche repriced by 8 basis points and the five-year tranche by six basis points, allowing the bank to lock in “historically tight funding spreads”.

Both tranches share an expected issue date of Sep 8.

Payments of interest and principal are guaranteed by Glacier Eighty, backed by a portfolio of loans purchased from the company and other assets.

The bonds are expected to receive Aaa ratings from Moody’s Investors Service and AAA from Standard & Poor’s Rating Services.

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Two maturities

The issuance is split equally across two maturities. The first tranche consists of 500 million euros in covered bonds maturing on Sep 8, 2028. These bonds carry a fixed annual coupon of 3.118 per cent payable annually in arrear.

The two-year tranche was priced at mid-swaps plus seven basis points, pricing about five basis points inside comparable Singapore secondary market levels. The new issue premium was estimated to be negative 1 to two basis points.

The longer-dated tranche comprises 500 million euros in covered bonds maturing on Sep 8, 2031. This five-year tranche features a fixed annual coupon of 3.342 per cent payable annually in arrear and was priced at mid-swaps plus 24 basis points, with an estimated new issue premium of zero basis points.

The dual-tenor strategy also successfully captured a diverse investor base, said UOB, with the 2 billion euros two-year order book deliberately positioned to capture current preferences for shorter maturities.

Bank treasuries dominated this tranche with a 56 per cent allocation, followed by asset managers at 20 per cent, central banks and official institutions at 12 per cent, and others at 12 per cent.

Conversely, the 1.9 billion euros five-year tranche appealed to traditional real money investors. Asset managers secured 41 per cent of that tranche, central banks and official institutions took 26 per cent, bank treasuries accounted for 23 per cent, and others took 10 per cent.

UOB shares fell 0.4 per cent to close S$0.16 lower at S$40.95 on Wednesday.