Barclays announces new SGD AT1 (callable on Mar 30) at the IPG of 5.80%

Barclays PLC (“Barclays”) plans on issuing new SGD Additional Tier 1 subordinated notes at the initial price guidance of 5.80%. The new notes are expected to be issued on 28 November 2024, with the first call date of 15 March 2030 and a mismatched first reset date of 15 June 2030. If uncalled, the coupon will reset based on the 5-year SORA-OIS plus the initial margin (to be determined) on the first reset date. The new issue will also reset every 5 years after the first reset date if it continues to remain uncalled.

Barclays is rated Baa1, BBB+ and A by Moody’s, S&P and Fitch respectively, with a Stable outlook across the three major rating agencies. Meanwhile, the new issuance is expected to be rated Ba1 and BBB- by Moody’s and Fitch respectively. While this particular new issuance is not expecting a credit rating from S&P, we note that Barclays AT1s are typically rated BB- based on notching from the issuer’s credit rating. Lastly, we wish to highlight that this new issuance pays quarterly interests (on 15 March, 15 June, 15 September and 15 December respectively).

For the nine months ended 30 September 2024 (“9M24”), Barclays recorded largely flat performance against the previous year – with profit after tax down slightly by -1% year-on-year (“YoY”) from GBP 5,190m (9M23) to GBP 5,143m (9M24). Although Barclays recorded marginally higher total income (<1% increment), this was offset by a slight increase in total operating expenses (+1%) – resulting in Barclays’ overall performance.

Barclays’ total operating expenses increased from GBP 12,011m (9M23) to GBP 12,143m (9M24), primarily due to UK regulatory levies of GBP 93m in FY24 and higher litigation costs YoY by GBP 67m. On the other hand, Barclays observed a reduction in operating costs despite continued inflationary pressure, which was enabled by cost efficiency savings of approximately GBP 0.7b.

Barclays’ performance had been more resilient than initially expected, particularly amidst the downward pressure on interest rates. Comparing quarter-on-quarter, net interest income in 3Q24 grew by +2% YoY against 3Q23, contributed by slower rate cuts than expected in the UK alongside Barclays’ considerable structural hedge position. As a result, Barclays have adjusted their guidance upwards for the Group’s net interest income to GBP >11.0b for FY24, compared to previously GBP 11.0b flat.

Barclays’ solvency and liquidity remains highly decent, with the Common Equity Tier 1 (“CET1”) ratio improving across the quarter from 13.4% (2Q24) to 13.8% (3Q24). The increase in the CET1 ratio was contributed by capital gains from attributable profits and a decline in risk-weighted assets, offset by dividends and other impacts. Meanwhile, the liquidity coverage ratio (“LCR”) and net stable funding ratio (“NSFR”) stand at 170.1% and 135.6% respectively, both of which are above the regulatory requirements of 100%. The Group liquidity pool is at GBP 311.7m, covering approximately ~57% of Barclays’ deposits.

The Group’s asset quality stood mostly stable, with the Group’s loan loss rate standing at 37 basis points (“bps”) – below Barclays’ expectation of 50 to 60 bps through the cycle. Barclays’ US Consumer Bank (“USCB”) segment contributes the majority of the Group’s credit impairment charge (about ~70%). With that said, loan losses at USCB have begun stabilising and are expected to average slightly lower across FY24 to FY26.

Table 1: SGD Banking AT1 notes

Issuance	Ask Price	Yield to Call	Years to Call	Bond Credit Rating (S&P/Fitch)
BACR Perpetual Corp (SGD)*	100.00*	5.80*	5.31*	N.R/ BBB-/ Ba1 (Moody’s)
BACR 7.300% Perpetual Corp (SGD)	107.700	4.925%	3.566	N.R/ BBB-
TD 5.700% Perpetual Corp (SGD)	104.000	4.735%	4.692	BBB-/ BBB+
UBS 5.600% Perpetual Corp (SGD)	103.875	4.731%	5.083	N.R/ BBB-
HSBC 5.250% Perpetual Corp (SGD)	102.400	4.658%	4.563	N.R/ BBB
STANLN 5.300% Perpetual Corp (SGD)	103.350	4.517	4.831	BB-/ BBB-
BNP 5.900% Perpetual Corp (SGD)	104.350	4.448	3.270	BBB-/ BBB
Sources: Bondsupermart, iFAST Compilations. Data as of 21 November 2024. *Yet to be issued, and final price guidance is expected to be adjusted downwards

We find the new issuance by Barclays rather attractive, offering a higher yield for a slightly lower credit rating as compared to most SGD AT1s. While we expect the final price guidance to be adjusted downwards (especially given the likely popularity of this new issuance, amidst depressed rates within SGD bond space), the yield should remain relatively attractive. We like the stability shown by Barclays in the recent period, owing to the restructuring and consolidation exercises (previously highlighted in the FY23 credit update here).

With that being said, the new issuance is an Additional Tier 1 paper, ranking below banking senior and Tier 2 subordinated notes. Risk is significantly higher compared to the other two, given the perpetual nature of the notes (therefore, non-call risk), deferral of non-cumulative coupons and loss absorption features on the notes. As such, the new issuance would not be suitable for risk-averse and conservative investors.

For investors considering options with lower risk exposure, CMZB 6.500% 24Apr2034 Corp (SGD) can be a good option. With a yield to call of 4.16% (at ask price of 108.85), this CMZB paper is a Tier 2 subordinated note with lower priority to risk absorption and comes with a fixed maturity date.

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) hold a position in CMZB 6.500% 24Apr2034 Corp (SGD), and the analyst who produced this report hold a NIL position in the abovementioned securities.

---

Our podcast series, Yield Hunters, is available on Spotify, iTunes Podcasts and Google Podcasts. We share our thoughts on new bond issues and hold discussions on the fixed income space. Listen to our latest episode below and follow us!