UOB Malaysia successfully priced its debut RM500 million Basel III-compliant Tier 2 subordinated Islamic MTN (“Tier 2 Sukuk Wakalah”) on 23 January 2024, the first public Tier 2 Sukuk transaction in the MYR market, issued by a foreign owned bank.

The  transaction was well timed, issued during an early part of the year with rising optimism for the year and ample liquidity. Coupled with strong support from investors who are confident in the bank’s credit profile and Islamic banking business, the Sukuk drew strong interests.

UOB Malaysia is rated AAA with a stable outlook by RAM, while the Tier 2 Sukuk Wakalah offering is rated AA1. A townhall was held on 10 January 2024 with strong reception by more than 72 participants from 38 institutions across the investing community.

Given the high quality credit, asset managers accounted for the bulk of investors at 58%, followed by insurance companies at 25%, banks at 11%, corporates at 4% and private banking accounts at 2%. On the advice of the joint underwriters CIMB Investment Bank and UOB Malaysia, the transaction was book-built with deal size announced upfront to build strong demand.

The book opened at with an IPG of 4.01% – 4.06% (spread of 45bps-50bps based on previous day closing 5 years MGS) and quickly received strong demand from a diverse group of 42 investors with BTC nearing 3x times cover by mid-morning, peaking at approximately RM1.8 billion. This enabled UOB Malaysia to close the book at 4.01%, the tightest end of the IPG, with a final order book of MYR1.7 billion registering an overwhelming BTC of 3.39 times cover. At MGS + 45bps, this is the tightest spread ever in the MYR market for a Tier 2 capital instrument in the MYR market to-date.

Prior to this, UOB Malaysia last issued a RM1 billion Basel III-compliant Tier 2 Subordinated conventional MTN in October 2022. The 10-year non-callable five-year paper was priced at 65 bps above five-year MGS with a yield-to-first call date of 4.91% per annum, and was upsized from RM500 million to RM1 billion due to overwhelming demand.

UOB Malaysia’s RM500 million Basel III-compliant Tier 2 subordinated Islamic MTN therefore has no doubt helped further advanced the bank’ initiatives to diversify its investor base by tapping the Sukuk market, and this transaction adds another feather in the cap of the joint underwriters given the solid outcome, and the high quality and granular orderbook generated for its client.