Singdollar bond market gets a booster

Spate of collective sales last year leads to rise in number of developers seeking funding

The collective sale fever last year could kick some life back into the lacklustre Singdollar bond market, say experts.

The market, which has been hit by interest rate volatility, continues to be choppy but strong issuers such as the Land Transport Authority (LTA) will be well-received, said Mr Clifford Lee, DBS Bank head of fixed income.

Last Monday, the LTA sold a bumper $1.2 billion worth of bonds, bringing the year-to-March 15 total to $5.4 billion, up 13.9 per cent.

Property developers pay for their land and collective sale deals typically via project financing or bank loans. The bond market has also been a popular funding option, in particular perpetuals or bonds with no fixed maturity.

Mr Devinda Paranthanthri, UBS Wealth Management, Asian credit strategist, expects more bonds to be sold in the coming months.

Developers spent almost $16 billion buying land last year, comprising collective sales of $8.2 billion and land acquisition - single-owner private land deals, government land sales sites at state tender - of $7.65 billion, said Cushman & Wakefield research director Christine Li . She added that developers have forked out $5.56 billion so far this year.

SGD bond issuance so far this year has come mainly from the real estate sector. Of the 22 deals, 17 or almost 80 per cent are from the real estate sector.

The Singapore skyline including Raffles City complex in the background. Of the four issuers which have tapped the bond market in the first two weeks of this month, three-HDB, ARA Asset Management and RCS Trust, the investment holding company of Raffl
The Singapore skyline including Raffles City complex in the background. Of the four issuers which have tapped the bond market in the first two weeks of this month, three-HDB, ARA Asset Management and RCS Trust, the investment holding company of Raffles City Singapore - are from the real estate sector. ST FILE PHOTO

  • $1.2b

  • Value of bonds sold by Land Transport Authority last Monday.

  • $16b

  • Amount developers spent buying land last year, comprising collective sales of $8.2 billion and land acquisition - single-owner private land deals, government land sales sites at state tender - of $7.65 billion, according to Cushman & Wakefield research director Christine Li.

Four bonds amounting to $610 million were sold last month, down 80 per cent from the $3.1 billion raised from nine issues in February last year.

The four in February were for CapitaLand Commercial Trust and Ascendas Real Estate Investment Trust, both Temasek-linked firms, and regular issuers FCOT Treasury, the financing vehicle of Frasers Commercial Trust and GuocoLand.

Of the four issuers which have tapped the bond market in the first two weeks of this month, three-HDB, ARA Asset Management and RCS Trust, the investment holding company of Raffles City Singapore - are from the real estate sector.

Mr Paranthanthri said the bond market might see some first-time property developer issuers, adding: "We recommend investors exercise caution when assessing the credit quality of these issuers."

The sustained rise in long-term interest rates from the end of 2017 continues to unsettle markets along with many commentators predicting the end of the multi-year bull market in bond prices.

The five-year swap offer rate (SOR) was at 2.2 per cent on March 15, well up on last year's low of 1.6 per cent on Sept 8. SGD bonds are priced off the SOR.

DBS' Mr Lee said: "As it stands now, the market is trying to come to terms with where interest rates will land."

Typically, when interest rates go up, bond activity will drop, he added. Mr Samuel Chan, Standard Chartered Bank's head of capital markets here, cited another factor for last month's paltry volumes - low redemptions.

"By and large, issuance cycles do follow redemption cycles and February has traditionally been a low-volume month; only $140 million in redemptions versus $3.2 billion in January 2018," said Mr Chan.

Investors have certainly been more selective as to what they want to invest in, he added.

A version of this article appeared in the print edition of The Straits Times on March 19, 2018, with the headline 'Singdollar bond market gets a booster'. Print Edition | Subscribe