Why are UOB shares falling?

The bank’s shares, which are down 2.5% in the last one month, fell after it announced the pricing of new floating rate covered bonds.

  • UOB (SGX: U11) share price fell as much 1% to S$25.56 on Wednesday (15 September 2021)
  • The bank has newly priced £850 million (S$1.58 billion) of Sterling Overnight Interest Rate Average covered bonds due 2026
  • A final orderbook over £975 million was generated from bank treasuries, central banks and real money fund managers
  • The stock has a potential 15% upside, according to the latest analyst price targets
  • Feeling bullish or bearish on UOB shares? Open an account with us to go long or short on the stock.

UOB prices £850 million of floating-rate covered bonds

United Overseas Bank (UOB) has priced a Sterling Overnight Interest Rate Average (Sonia) benchmark covered bond offering, becoming the first such issuer in Singapore.

The issuance of S$1.58 billion of floating-rate covered bonds due 2026, have been priced with a coupon rate of compounded daily Sonia plus 100 basis points, with a reoffer yield of 29 basis points above Sonia.

The transaction resulted in a final orderbook in excess of £975 million from an investor base of bank treasuries, central banks/ official institutions and real money fund managers, the bank said in a press release.

The offering, issued under UOB’s US$8 billion Global Covered Bond Programme, follows UOB’s consent solicitation for the conversion of the interest basis for its £350 million floating rate covered bonds due 2023 from the Sterling LIBOR to Compounded Daily SONIA in July 2021.

This latest issuance is the ‘largest-ever Sterling covered bond offering from an Asian issuer and a landmark trade in establishing a SONIA-linked pricing point for issuers in the region’, UOB said, adding that it is expected to be rated “Aaa” by Moody’s and “AAA” by S&P Global Ratings.

Mr Lee Wai Fai, Group Chief Financial Officer, UOB, said: ‘Since we launched the country’s first Sterling-denominated covered bond in 2018, there is now greater clarity and established market conventions in the SONIA market. The success of our latest transaction has clearly shown investors’ solid reception to Singapore covered bonds and is testament to UOB’s strong brand and fundamentals.’

What’s next for UOB’s stock price?

In terms of stock outlook, UOB shares have a consensus rating of 'outperform' and target price of S$29.61, based on the latest analyst data published by SGX StockFacts.

The target price represents a potential 15.4% upside from its latest traded price of S$25.65.

CIMB analysts maintained an 'add' rating and target price of S$29 on UOB shares, after reiterating a 'neutral' call on the Singapore banking sector.

They wrote that the impact of the dividend cap removal by the Monetary Authority of Singapore has 'played out'.

MAS has also 'removed the segregation of system statistical data by DBU and ACU, paving the path towards more robust and complete disclosures', the analysts added.

Finally, they noted that 'UOB's approach to impairments has been more measured compared to its peers over FY2020'. As a result, they believe that year-on-year earnings growth across FY2021 will likely be relatively modest, albeit stable.

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