The S$300 million ($166 million) issue marked the company’s first visit to the local debt market this year and the first since it launched a debut S$300 million domestic seven-year offering last August.
SP will use the money to repay existing debt ahead of an IPO scheduled for later this year. That transaction could raise the company over $1billion via joint lead managers DBS, Merrill Lynch and UBS Warburg.
The latest bond offer, rated triple-A by Standard & Poor’s, was issued at par and carries an annual fixed rate coupon of 4.05% to be paid on a semi-annual basis.
With this being the first 12-year corporate bond from Singapore and the lack of a government benchmark for paper of that maturity, the lead managers took their pricing lead from deals done by the local statutory boards, Jurong Town Corp (JTC), Housing Development Board (HDB) and the Land Transport Authority (LTA).
“We looked at the 10-year stat board offerings from LTA and HDB, which are trading at swaps plus 5 to 6bp and we priced slightly back from that,” says an official at one of the leads. “JTC did do an S$200 million12-year deal in October with a 4.86% coupon, but that was pretty small with no real trading, so we didn’t use it as a benchmark.”
Around three hours after launch, the official says that about a third of the paper had been placed. “We’ve been happy with the response so far and think we’ll be out of the paper quite soon. At the long end we’re seeing a lot of interest from the insurance companies and pension funds.”
A second lead official was also confident that the bonds would find good homes, even though he admits that setting the pricing was not as straightforward because of the longer tenor.
“There’s no 12-year benchmark, so I guess it was a bit more difficult to price than usual,” he adds. “But saying that, in the present low interest rate environment, to get high absolute yields, investors are more prepared to go up the yield curve. They may not have done so with a property company, but see this is a quality issue from a triple-A rated company.”
Some bankers outside the deal, however, were not so certain that the pricing was at the right level. “It’s a difficult deal to compare with, because although JTC has issued 12-year paper, that was 0% risk weighted and this is 100% risk weighted,” the banker says. “But looking at the current interest rate swaps, which are between 388bp and 398bps, the pricing is a bit tight for the pick up on offer. I don’t think it is going to fly out of the window, that’s for sure.”
Another banker who felt yield pick up was on the low side says all parties involved on the SP deal were taking a risk with pricing. “The pipeline is pretty heavy at the moment and investors are not short of paper or options,” the banker says. “I think that the deal had better sell pretty quickly or it could make them look pretty bad.”