Jewellery firm Aspial Corporation today launches five-year bonds to the retail market with a sparkling annual payout, or coupon rate, of 5.25 per cent.
In selling $75 million of bonds, Aspial is braving investor concerns that rising interest rates will erode their appeal - along with competition from the soon-to-be-launched Singapore Savings Bonds (SSB).
The bonds, issued by Aspial unit Aspial Treasury, offer a stronger return than the coupon rates on offer from the seven locally listed retail corporate bonds yet to mature.
Despite their attractive returns, analysts cautioned that the value of retail bonds will face pressure when interest rates rise.
The first jewellery retailer to be listed on the mainboard, Aspial has expanded its business into real estate. Its property arm World Class Land is known for residential projects in Australia, including Australia 108 in Melbourne.
With the bond offer, it hopes to raise $72.8 million in net proceeds to refinance borrowings, increase working capital and fund future business investments.
The application for the bonds starts at 9am today and will end at noon on Aug 26. The bonds are then expected to be issued on Aug 28, with trading set to start on Aug 31. DBS is the sole bookrunner.
NO RIGHT OR WRONG TIME
There's no right or wrong time for investing in bonds. Investors will have to balance the return with the interest rate impact and decide for themselves.
'MR BERNARD AW, IG market analyst
Retail investors need at least $2,000 to subscribe to the bonds. Interest will be paid on Feb 28 and Aug 28 every year.
The launch of a retail bond is fairly rare in the local fixed income market, which currently boasts only seven products - excluding Aspial - still trading ahead of maturity.
The offer by Aspial came after Frasers Centrepoint's $500 million issuance in May, which offers a coupon rate of 3.65 per cent over a seven-year tenure. Before FCL's issuance, Genting Singapore rolled out its perpetual bonds with a 5.125 per cent coupon rate in 2012.
Aspial's offered rate is "wonderfully attractive" on paper, but investors should be wary of the uncertain interest rate outlook, CMC Markets analyst Nicholas Teo said.
"Bond value is determined by two things - the local interbank offered rates and the Federal Reserve rates. After years of low interest rate environment, investors are still intoxicated by high bond yields, but when the Fed raises the rates, they may find their investment getting a haircut."
While their coupon rate will not change, the value of bonds will generally drop if interest rates go up offering other attractive investment options.
The Fed is widely expected to raise US interest rates by 25 basis points this year, likely next month.
IG market analyst Bernard Aw added: "A retail bond issuance now will also face stiff competition from Singapore Savings Bonds. The SSB is dominating market interest particularly among the smaller investors, because it's practically risk-free."
The SSB will be available for applications from Sept 1. They are principal-guaranteed and backed by the Singapore Government, which has an AAA credit rating. Aspial is not yet rated.
But Aspial is not worried about timing and demand. A spokesman said: "We believe retail bonds and the SSB both provide alternative investment options for retail investors. We think they will both be welcomed by retail investors in Singapore, who are sophisticated in their investment objectives."
Mr Aw agreed, saying: "There's no right or wrong time for investing in bonds. Investors will have to balance the return with the interest rate impact and decide for themselves."