Jun 03 2008
OCBC Preference Shares Details
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.
Informative, with content coherent with OCBC’s sale brochure.
A few points to add.
1. The previous OCBC preference shares (@4.2% dividend) released in 2003 were not redeemed upon maturity; as it was “trading above par” according to OCBC in Business Times. But it’s more likely because they are cheaper funding; as compared to 5.1% in the present issue.
2. As with fixed dividend/coupon products. Interest rate risk (and inflation risk in particular) should be a major concern.
3. In line with that, a comparably safer and more liquid product: SG Govt bonds, last paid out coupons in excess of 5% for their 5 year tenure bonds as recently as 1998.
That’s some food for thought.
Hi Martin,
What do you think about this OCBC preference share? Is it worth taking up? It sounds to me that it is really a good deal with fixed income at relatively low risk.
What I dont really understand is that once it is listed on SGX, will the preference share price following the ordinary share price? Also does it mean if the preference share price goes up in the future and when we sell it in the market, what our return will be profit + fixed dividend payout in the past, is that so? If we are bullish on OCBC share price, I guess this will be a good chance to subscribe the preference share?
>> If the Bank should decide to redeem, it will pay the investor the issue price of S$100 for each preference share…
According to this statement, if OCBC were to redeem the preference share in future, it will be $100/share. If the price in the market is higher than $100/share, wouldnt the investors better off just by selling off in the market?
Sorry for shooting so many questions as I am totally new to the preference shares and thanks in advance for your advise
Hi Benjamin,
Thanks for sharing. The FAQ was actually given to me by OCBC, so it should be coherent with their sales brochure.
Yes, SGS bonds is safer. However, based on their current market prices, the yields range from 0.8% p.a. for a 1-year maturity bond to about 3.87% p.a. for a 20-year bond.
This is nothing close to what the OCBC preference shares is offering.
And as with all fixed income instruments, interest rate risk will always be there.
Hi Tang,
I can’t really advice on whether the preference shares is suitable for you as it will depend on your financial circumstance, risk profile and investment objectives.
Good points raised for your questions.
I will answer them in a separate post as I feel the information will also be useful to other people.
Hey thanks for some clarifications. Im going to ask some questions which I hope u can help:
1) at the end of 5 years, if OCBC redeems,it can offer subscribers $100 or less than that? In what circumstances it will offer less than the issue price?
2) understand that it is not principal guranteed much like share purchase why would this $100 price not trade at the current ordinary price levels of $8.60 range? Is there a different class of trading market?
3) if OCBC redeems at any time at what price it will offer at redemption and what will the dependent factors be?
Maybe the answers to these questions may also be useful to other people. First time trying to understand preference share investing.
[...] on the questions received from my previous post on the OCBC preference shares, I think it will be good for me to elaborate more on what preference shares or preferred shares [...]
Hi Tim,
I just wrote a new post on preference shares. Hope it answers your questions.
If there are still doubts, feel free to ask again.
[...] ATM application for the $50 million second tranche of OCBC preference shares opens from 9am today until noon on 28th July. You can apply for them through the ATM of the 3 local [...]