There has been considerable interest in the preference shares offered by OCBC, so I thought I’ll post some of the details here.
OCBC Preference Shares Offering
Price : S$100 per share
Total number of shares : 10 million
Value : S$1 billion
Dividend yield : fixed at 5.1% p.a.
Credit rating : Aa3 from Moody, A+ from Fitch and A- from S&P
Listed date (expected) : 30th July 2008
Subcription details:
Phase 1 (Placement)
9.5 million shares from 2nd June 2008 to 14th July 2008 to be placed via an application form (already fully subscribed).
Phase 2 (ATM offer)
0.5 million shares from 16th July 2008 to 28th July 2008.
Minimum subscription is 200 shares ($20,000). Thereafter in multiples of 100 shares ($10,000)
Frequently Asked Questions
1. Is the dividend of 5.1% guaranteed?
The payment of dividends on the preference shares is subject to declaration by our Board of Directors. As the preference shares rank ahead of ordinary shares, OCBC Bank would have to declare dividends on the preference shares if it declares dividends on the ordinary shares. Since the end of World War II, OCBC Bank has never stopped paying dividends on its ordinary shares.
2. Is the dividend of 5.1% calculated based on issue price of S$100?
The dividend of 5.1% per annum will be paid on a semi-annual basis, calculated on the issue price of S$100 per preference share. The dividend amount is not dependent on the prevailing market price of the preference shares.
For example, if you subscribe for 200 preference shares at S$20,000, the dividend payable to you on each dividend payment date will be approximately S$510 on 20 June and on 20 December of each year, which means a total amount of S$1,020 per year.
Please note that the first proposed dividend payment on 20 December 2008 will be less because of the shorter period for computation of dividend from 29 July 2008 to 19 December 2008.
3. Do I need to pay tax on the dividend received?
If you are a resident in Singapore, or if you are a corporate entity in Singapore, the dividend you receive will not be liable to any further Singapore tax as it is tax exempt. You will receive the 5.1% dividend without any tax deduction. If you are not a resident in Singapore, please seek your own tax advice.
4. What are the potential risks involved in this investment?
The key potential risks are summarised below:
- Dividend payment is not cumulative. If OCBC Bank for whatever reasons stops payment for one year, the amount not paid will not be payable in the following year(s)
- The Bank has the right but not the obligation to redeem the preference shares, and preference shareholders have no right to call for their redemption. Preference shareholders are however free to sell in the market
- The price of the preference shares may fluctuate depending on prevailing market conditions, including interest rates, as well as the credit standing of the Bank
- In an unlikely liquidation scenario, the preference shares will rank in priority to ordinary shares but junior to all depositors and other creditors (including holders of subordinated debt) of the Bank
- The market for the preference shares may not be sufficiently liquid or active. The preference shares may trade lower than the initial issue price
5. Will OCBC Bank redeem the preference shares? Will there be any change in the dividend rate in the future?
OCBC Bank may redeem the preference shares under the following circumstances, subject to, amongst other things, approval of the regulatory authority:
- on the date falling 5 years after the issue date, and on each dividend payment date thereafter, although the Bank is not obliged to do so. If the Bank should decide to redeem, it will pay the investor the issue price of S$100 for each preference share, plus any dividends payable up to the redemption date,
- if the preference dividend becomes subject to tax, due to changes in the Singapore tax laws, or
- if the preference shares do not qualify as capital of the Bank
If the Bank does not redeem, the dividend rate will stay at 5.1% and there will be no change in the dividend rate.
6. Will the preference shares be traded in the market?
Yes, you will be able to trade the preference shares once they are listed on the Main Board of the SGX-ST on or about 30 July 2008. Market price of the preference shares may be above or below the issue price.
For more details, you can download the press release and prospectus from OCBC.
OCBC Preference Shares Media Release
OCBC Preference Shares Prospectus
Please note that dates given above are subjected to change and can be bought forward depending on the demand. Investors who wish to find out more about the shares can visit any OCBC bank branch, visit their website at www.ocbc.com or call them at 1800-4386088.