Singapore dollar bonds worth $22 billion are callable or due to mature next year, exposing issuers and investors to refinancing risks as borrowing costs rise in the US.
The US Federal Reserve last Wednesday raised policy rates by 25 basis points (bp) and surprised markets with guidance for three, instead of the expected two, rate hikes next year. US Treasury yields immediately jumped 10bp-11bp across the curve, pulling Singapore dollar swap offer rates higher on Thursday, according to International Financial Review (IFR) data.
The five-year and 10-year swap offer rate soared 10bp to 2.36 per cent and 2.87 per cent, respectively, from the previous day's close.
Issuers that sold bonds in early 2012, for example, could be looking at an increase in five-year base rates of around 100 bp when they come to refinance, as the benchmark rate was only 1.34 per cent at the start of that year.
Pricing issues aside, Singapore bankers are still fairly sanguine about refinancing risks, pointing out that most of the maturing bonds will come from high-grade borrowers, which will still find healthy demand for new issues, albeit at higher absolute yields.
Indeed, Triple A-rated government agency the Housing Board accounts for $3.4 billion of next year's maturing bonds, IFR said. Placing its bonds is usually not a problem and it has sold $4.5 billion of notes this year.
Primary issuance in the Singapore dollar bond market should be better in 2017, coming off this year's lows and, hopefully, no further big shocks will affect the SGD market.
MR TAN KEE PHONG, head of capital markets at OCBC Bank.
Bankers also expect Genting Singapore to consider a new financing well ahead of 2017 call dates on $2.3 billion of perpetual notes (perps), although analysts stress the group is in no immediate need of cash. A $1.8 billion 5.125 per cent perp is callable on Sept 12 and a $500 million 5.125 per cent retail perp is callable on Oct 18.
"The perps still have some legs to stand on. Genting has spare cash to pay down if their projects in Japan and South Korea do not happen," said a Singapore banker. Analysts estimate Genting's cash pile to reach $4.7 billion at year end.
"However, they will need to manage their needs, given that business prospects in the industry can be challenging," he said.
Bonds totalling $17.5 billion have been issued to date this year, down 18.5 per cent from last year and the lowest since 2009, when $11.6 billion was raised, according to Thomson Reuters data.
The last quarter has been particularly weak, with a mere $1.9 billion of notes sold after a slew of defaults earlier in the year.
"Primary issuance in the Singapore dollar bond market should be better in 2017, coming off this year's lows and, hopefully, no further big shocks will affect the SGD market," said OCBC Bank's head of capital markets Tan Kee Phong.
"This year, the Singapore market was resilient against three major surprises - the UK vote to leave the EU, the US presidential vote for Donald Trump and the series of bond defaults and restructurings in the local market... This reflects the maturity of investors - a positive for further development of the Singapore-dollar bond market."
Bank capital deals from both local and foreign banks are likely to remain a strong theme as Singapore investors have shown strong appetite for riskier, high-yielding assets from high-rated banks.
Bankers are also hoping foreign banks, particularly those from the US and Europe, will sell non-preferred senior notes in Singapore to count towards their total loss-absorbing capacity ratios.