Preference shares: OCBC NCPS, DBS NCPS & UOB NCPS

by yapwk99@hotmail.com

I was trying to help my father in law in researching some preference shares in Singapore. In this exercise, I learned a great deal and publish the results for everyone’s benefits:

 

 

	Bond	Shares	Preference Shares
Ownership of bank?	No	Own certain % of company	No (no voting rights)
Returns	fixed interest	variable dividends based on board’s decision	fixed dividends, but issuer can choose not to pay if ordinary shareholders are not paid dividend
Maturity	Fixed on certain date	Perpetual	Perpetual
“Exit Mechanism”	Issuers buy back bond on maturity (obligated to do so) or secondary market	Share buyback or secondary market	Issuer buy back (no obligation) on stated dates after a period or secondary market
Risk	interest rate and credit risk	performance of issuing bank	interest rate and credit risk
Artificial cap?	Face value as bank can buy back at face value	No	Face value as bank can buy back at face value
Priority of getting paid in liquidation	1st	3rd	2nd
Good for	Investors who want fixed income	Investors who has higher risk appetite	investors who want fixed income than bond yield at higher risk

 

The table below compares the preference shares issued by the local banks in Singapore:

 

 

	UOB non-cumulative non-convertible preference shares	OCBCCap (2008) 5.1% Non-Cumulative Non-Convertible Guaranteed Preference Shares	DBS Bank 6% Non-Cumulative Non-Convertible Perpetual Preference Shares
Issue Date	09/15/2008	08/27/2008	05/28/2001
Maturity	Perpetual	Perpetual	Perpetual
Redemption (note 1)	15 September 2013, 15 September 2018 and thereafter, on each dividend payment date	20 September 2018 and thereafter, on each dividend date	on/after 15 May 2011
Dividend Rate	5.05%	5.1% up to 20 Sept 2018, thereafter 3-Month Singapore Swap Offer Rate + 2.5%	6.0% up to 15 May 2011, thereafter 3-Month SIBOR + 2.28%

Redemption (note 1) : Preference shares could be redeemed at the option of banks, in full but not in part.

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