OCBC Bank plans to sell $1 billion worth of preference shares to major investors in the next few days to shore up liquidity. The last issue was in June 2008 and August 2008, right before global financial crisis.
The bank will be offering a coupon rate at 4% that will be paid twice-yearly.
The payout is non-cumulative, which means that if the bank does not pay dividends this year, it is not obliged to make it up the following year. The shares will be callable after 5 1/2 years in 2018. This placement will be offered only to institutional investors and sophisticated investors, with a minimum tranche of $250,000.
Preference shares and other perpetual securities have been very popular with retail investors lately, but many do not understand the risk of investing in preference shares.
If you think Preference Share price will not drop, take a look at how OCBC 5.1% Preference Share performed since inception. It has dropped as much as 15% during financial crisis.
Below are past preference shares issued by OCBC:
- January 2003 – Amount: $500 million; Dividend: 4.5 per cent
- May 2003 – Amount: $396 million; Dividend: 4.2 per cent
- January 2005 - Amount: $400 million; Dividend: 3.93 per cent
- June 2008 - Amount: $1.5 billion; Dividend: 5.1 per cent
- August 2008 – Amount: $1.5 billion; Dividend: 5.1 per cent
Accredited investors (AI) are classified according to net worth and income.
As defined in Section 4A of the Securities and Futures Act (Chapter 289), an accredited investor means
(i) an individual —
- (A) whose net personal assets exceed in value S$2 million (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount; or
- (B) whose income in the preceding 12 months is not less than $300,000 (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount;
(ii) a corporation with net assets exceeding $10 million in value (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe, in place of the first amount, as determined by —
- (A) the most recent audited balance-sheet of the corporation; or
- (B) where the corporation is not required to prepare audited accounts regularly, a balance-sheet of the corporation certified by the corporation as giving a true and fair view of the state of affairs of the corporation as of the date of the balance-sheet, which date shall be within the preceding 12 months;
(iii) the trustee of such trust as the Authority may prescribe, when acting in that capacity; or
(iv) such other person as the Authority may prescribe.
Because of their accredited status, these high net worth individuals enjoy access to certain financial products that are not sold to retail investors.
This is because some products from financial institutions, such as unit trusts and structured products, are made available only to these accredited or sophisticated investors. The ‘accredited’ status implies that the investor can withstand a higher level of monetary risk than the non-accredited investor.
Typically, the minimum investment amount for these products may start from at least $200,000.
Chinese authorities recently announced that a third Renminbi clearing bank would be established in Singapore after BoC (HK) and BoC (Macau). This would provide an important foundational element for an eventual offshore RMB trading platform as it would allow local banks to deposit RMB reserves locally and facilitate cross-border RMB trade settlements- both of which currently require the use of a Hong Kong platform.
The developments also indicate that Singapore will be the first jurisdiction outside of Hong Kong to see the offshore deliverable RMB market exparenmimbi and offshore renmimbi market regime currently in place in Hong Kong, rather than create separate competing systems as this is already freely transferrable offshore.”
Since inception last August, the pace of organic growth of the CNH market has been rapid and sustained. The CNH deposit base grew at a 251% annualized pace, to over CNH 450 bn by the end of March, putting it on track to reach CNH800 bn – 1.2 trn by year end.
Liquidity has grown at a 27% monthly pace with spot USD-CNH seeing around USD1 bn daily turnover. It is expected to eclipse the non-deliverable forward (NDF) market in liquidity in the coming few years as the overall deposit base of CNH increases.
Cross-border trade settlement reached RMB 360bn, or 7% of total trade in the first quarter of 2011, having grown from 5% in the final quarter of 2010 and gross bond issuance has clocked RMB 48 bn in 68 issues this year, surpassing 2010’s issuance.
Singapore investors benefit from this move. Since second half of last year. I’ve seen many RMB related products launched. Many fund houses started to launch RMB dominated funds.
The other big growth area is CNH Bond Market. While most of the products were only available to Accredited Investors, UOB has opened doors to retail investors with their United RMB Bond Fund