Case study

DBS Bank Privatisation Exchangeable Notes

by Professor Ian H. Giddy
New York University


DBS Bank, as arranger for the retail offering of the S$ PENs, wishes to announce the terms for the offering of US$765 million principal amount of PENs to be issued by Finlayson Global Corporation Limited (a wholly-owned subsidiary of Temasek), and exchangeable for ordinary shares of DBS Bank.

The issue price of the PENs is 100% of the principal amount of the PENs. The offering size, yield to redemption, redemption price, initial exchange price and initial exchange premium of the PENs are as follows:-


  Euro PENs US$ PENs S$ PENs
Offering Size   Euro 350m US$350m S$30m
Yield to redemption 
(p.a. on a semi-annual basis)
  2.5% 4.25% 2.5%
Redemption price   113.23% 123.40% 113.23%
Initial exchange price   S$11.58 based on fixed exchange rate of 
S$1.917=Euro 1
S$11.58 based on fixed exchange rate of S$1.693=US$1 S$11.58
Initial exchange premium over the blended closing price of S$9.65 on 8 Feb 99   20% 20% 20%

Further details of the terms of the PENs are set out in the Appendix.

The PENs are unconditionally guaranteed by the Government of the Republic of Singapore. The PENs are expected to be assigned on issue a rating of "AAA" by Standard & Poor’s Ratings Services and "Aaa" for the S$ PENs and "Aa1" for the US$ PENs and Euro PENs by Moody’s Investors Service, Inc.

The offering is part of the Government’s ongoing privatisation initiative that will enable it to divest part of the non-voting convertible preference shares received as consideration for the transfer of POSBank to DBS Bank in November 1998. The preference shares underlying the PENs are exchangeable into approximately 10% of DBS Bank’s enlarged ordinary share capital.

The PENs also have a novel feature which gives investors an option to convert their PENs into cash-settled zero strike warrants should they be restricted from owning local shares at the time of exchange. The warrants give the holders the economic benefits to the underlying shares for another 5 years from the maturity of the PENs but not the voting rights. The warrants are expected to be listed on a recognised stock exchange overseas. Although this option is designed to address the restrictions on foreign ownership, local investors (other than investors who use their CPF funds to purchase the PENs) may also opt for the warrants in lieu of local shares or cash settlement. 

The S$ PENs with an initial size of up to S$30 million are set aside for a retail offering to the public in Singapore. The issuer has the discretion to increase the maximum issue size from S$30 million to S$50 million depending on demand. Applications for these PENs, available in lots of S$10,000, can only be made from 9 am on 11 February 1999 to 12 noon on 18 February 1999 at the ATMs of DBS Bank (including its POSBank Services division), Keppel TatLee Bank Limited, Oversea-Chinese Banking Corporation Limited Group, Overseas Union Bank Limited and United Overseas Bank Limited Group. Each application to subscribe for the S$ PENs may be paid in cash, by CPF funds or a combination of both. Where an applicant elects to use a combination of cash and CPF funds, the respective amount for each method of payment must be an integral multiple of S$10,000. S$ PENs subscribed with CPF funds may not be exchanged for any warrants.

An applicant must have an existing bank account and hold an ATM card with one of the participating banks mentioned above. In addition, he must maintain a Securities Account with the Central Depository ("CDP") in his own name at the time of application and a CPF Investment Account with the relevant participating bank if he wishes to apply using CPF funds. 

<>The PENs will be listed and traded on the Stock Exchange of Singapore Ltd ("SES"). 

"This document is not an offer of securities for sale in the United States. The Securities are not being registered under the US Securities Act of 1933, as amended (the "Securities Act") and may not be offered or sold in the United States or to or for the account or benefit of US persons (as such terms are defined in Regulation S under the Securities Act) unless registered under the Securities Act or pursuant to an exemption from such registration. The Issuer does not intend to register the Securities under the Securities Act."




Euro PENs



Offering Size


US$765 million equivalent

Offering Size per Tranche



350 m



Tenure / Maturity


5 years’ time on 19 February 2004

Issue price 


100% of the principal amount




Yield to redemption


2.5% p.a. on a semi-annual basis 4.25% p.a. on a semi-annual basis 2.5% p.a. on a semi-annual basis
Redemption price





Optional exchange


Exchangeable at any time on or after 3 years from the date of issue into Units comprising:-
(1) Foreign Shares of DBS and 
(2) (a) Local Shares of DBS or (b) Zero Strike Warrants in respect of the Local Shares or (c) Accreted Exchange Price of the Local Shares; Foreign investors cannot receive option 2(a)
Unit Composition


0.4 Foreign Shares and 0.6 Local Shares
Initial Exchange Price 


S$11.58 per Unit based on fixed exchange rate of 
S$1.917=Euro 1
S$11.58 per Unit based on fixed exchange rate of S$1.693=US$1 S$11.58 per Unit
Mandatory exchange provision


Callable for exchange into shares on the maturity date if the Blended Price of a Unit is at least 145% of the Initial Exchange Price for 30 consecutive days
Redemption at the Option of the Issuer


Issuer may redeem the PENs after 3 years from the date of issue at the accreted value if (i) the Local Shares and Foreign Shares of DBS Bank cease to be separately designated and (ii) the Blended Price of a Unit is at least 145% of the Initial Exchange Price for 30 consecutive days 


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