DBS Redeems $1b Perpetual Securities at 3.30% on 27 February

DBS Group Holdings Ltd (DBSM.SI) has announced its decision to redeem all outstanding $1 billion 3.30% perpetual capital securities on 27 February. These securities were issued under the US$3b Global Medium Term Note Programme in 2020 and were first callable in 2025. Upon redemption, the securities will be subsequently cancelled and de-listed from the Singapore Exchange Securities Trading Limited (SGX-ST).

The redemption of these securities is a strategic move by DBS, which has a strong capital position and is looking to optimize its capital structure. The bank has been steadily building shareholder value through special dividends and bonus shares, and this redemption is another affirmation of its commitment to capital management.

The redemption of these securities will have several implications for DBS and its investors:

1. Improved Capital Ratios: By redeeming these securities, DBS reduces its total debt, which in turn improves its capital ratios, such as the Common Equity Tier 1 (CET1) ratio. This is a key metric used by regulators to assess a bank's financial health and its ability to absorb losses. A higher CET1 ratio indicates that DBS has more capital to absorb potential losses, making it more resilient to economic downturns.
2. Flexibility in Future Financing: The redemption of these securities gives DBS more flexibility in its future financing options. It can now choose to issue new securities with different terms and conditions, such as lower interest rates or longer maturities, to optimize its capital structure. Additionally, DBS can explore other financing options, such as equity issuance, to raise capital for growth or to strengthen its balance sheet.
3. Potential Impact on Shareholder Returns: The redemption of these securities could potentially lead to higher shareholder returns, as DBS can now distribute the freed-up capital through dividends or share buybacks. In fact, DBS has announced a S$3.0 billion share buyback program, which is the first time the repurchased shares will be canceled. This demonstrates DBS's commitment to capital management and shareholder value creation.

For investors holding these securities, the redemption means they will no longer receive the 3.30% annual interest payments. However, they will receive the face value of the securities, which is $1,000 per calculation amount. This capital gain or loss will depend on the market value of the securities at the time of redemption. Additionally, investors will need to decide how to reinvest the funds, taking into account current market conditions and interest rates.

In conclusion, DBS's redemption of $1 billion 3.30% perpetual capital securities is a strategic move that improves its capital structure, provides flexibility in future financing, and potentially enhances shareholder returns. Investors holding these securities should consider the implications of the redemption and make informed decisions about how to reinvest the funds.