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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