Bond issues could slide for third straight year

The Westlite Mandai Dormitory is part of Centurion Corp's portfolio. Centurion's $85 million bond issue launched in April.
The Westlite Mandai Dormitory is part of Centurion Corp's portfolio. Centurion's $85 million bond issue launched in April.PHOTOS: ST AND BT FILE

Investors still favour high-yield perpetuals, as investment-grade familiar names dominate market

The number of Singdollar-denominated bond issues is on track to fall again for a third straight year.

As the half-year mark approaches, the value of these new bond issuances has hit $12.5 billion so far this year with 61 deals done, versus $12.7 billion in the same period last year from 70 issues, according to DBS Group Research, comparing data up to Monday.

The downtrend is clear. In all of last year, $19.2 billion was raised from 104 new bond issues, versus $22.5 billion from 159 new issues in 2015. Even in a market flush with cash, the deal count has dropped as many smaller firms with riskier profiles continue to shy away from new bond deals in Singapore, after a series of high-yield bond defaults headlined by the collapse of Swiber last July left investors spooked.

High-yield corporate bonds typically refer to unrated bonds with coupon rates above 4.5 per cent at issuance, that are perceived to be riskier than investment-grade bonds.

The DBS tally showed that total proceeds raised from issuers with a market cap below $1 billion amounted to just $600 million as of Monday, whereas $1.38 billion was raised as at June 12 last year.

Mr Terence Lin, assistant director of bonds and portfolio management at iFast Corp, said: "Since the start of the year, we've seen yields come down so the investment-grade issuers were riding on that to raise money at cheaper rates. But for high-yield issuers, even those that came in didn't try to raise a lot of money."

Workers dormitory owner Centurion Corp was the first to test investors' risk appetite in April with an $85 million issue for its 5.25 per cent notes due 2020.

Century Sunshine's $102 million sale of 7 per cent bonds due 2020 offered the highest coupon so far this year, but the China-based fertiliser firm launched its new issuance as part of a refinancing where investors holding some $38 million of its outstanding earlier-maturity bonds swapped in to the new issue.

SMALLER DEALS

For high-yield issuers, even those that came in didn't try to raise a lot of money.

MR TERENCE LIN, assistant director of bonds and portfolio management at iFast Corp.

"They had basically an anchor investor and a greater deal of confidence that the deal would be successfully taken up," Mr Lin said.

Other issuers like developer Oxley have chosen to tap the US dollar bond market at what looks like a premium to their Singdollar costs.

DBS fixed-income head Clifford Lee describes the local bond market as an "investment-grade, familiar name-dominated market". What this also means is that investors are eager to accept higher structural risk and longer tenor for issuers whose credit they are comfortable with.

So perpetuals, or bonds without a fixed maturity that instead have call dates when the issuer can choose to redeem the bond, remain popular with private banking clients here.

StarHub's recent $200 million perpetual with an unspectacular 3.95 per cent coupon was 7.5 times subscribed, with private banking clients scooping up 47 per cent of the issue.

In May, Hotel Properties sold $150 million perpetuals with a 4.65 per cent coupon. It received orders 10.7 times the issue size, with 68 per cent from private bank clients.

Meanwhile, liquidity in the secondary market has also improved from last year, due to more bonds redeemed and less new supply.

Mr Lin said: "In the second half of last year, after Swiber, we practically didn't see any high-yield issues at all. Lippo Malls' first perpetual came out last September, and there was a Julius Baer 5.75 per cent perp, although that is strictly not considered high-yield... Whoever is chasing yield can get it only from the secondary market."

A version of this article appeared in the print edition of The Straits Times on June 14, 2017, with the headline 'Bond issues could slide for third straight year'. Print Edition | Subscribe