Martin Lee @ Sg
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DBS Bank to Issue Preference Shares

DBS announced yesterday that it will be launching an offering of non-convertible hybrid Tier 1 securities in the form of preference shares to shore up its Tier-1 regulatory capital base.

DBS Tier 1 was 9.2 percent at end-March 2008, which was above the regulatory requirement of 6 percent.

According to Jeanette Wong, CFO of DBS Bank, they are taking advantage of market conditions to issue the hybrid Tier 1 securities. The proceeds will strengthen their financial position and enable them to continue to grow their pan-Asia franchise.

S$1.5 billion worth of preference shares will be offered with the close of the offer on 27th May 2008.

The shares will pay a fixed dividend of 5.75% pa until 15th Jun 2018, after which it will pay a floating rate equal to the 3-month SGD swap offer rate plus 3.415%. The securities will be perpertual but can be redeemed at any time by DBS. They will have no convertibility option.

The securities are rated Aa3 by Moody and will be distributed to institutional investors: 50% to private banks, 34% to insurance companies, 10% to fund managers and the reminder to corporates and other banks.

Looks like retail investors do not have a chance to subscribe to the preference shares this time round.

If you are not familiar with the term preference share, it is a basically a type of asset between a bond and a normal share. Preferred stockholders will be paid out in assets before common stockholders and after bond holders in bankruptcy. Preferred stock that carry a dividend will be paid out prior to any dividends to normal shareholders. Preferred stock may also have a convertibility feature into common stock.

Despite the name, the preference share issued by DBS for this offering will have a behaviour much closer to that of a bond than a normal share. The daily quoted price on the secondary market will probably trade close to its face value and be affected by the movements of interest rates.

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2 comments
Fury says 8 years ago

Hi, Lion Investor,
For the DBS 6% ncps 10 traded in SGX, when is the call date? . I just could not find the fact sheet, please help me. Thank you.

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