The Asian bond splurge seems unstoppable, and now it has reached the top of the credit pyramid. Temasek Holdings (Temasek), the Singapore government-owned investment company, early yesterday morning raised $1.5 billion with a 10-year bond, riding a wave of irresistible enthusiasm for Asian names.
Investors worldwide, having poured money into bond issues launched in the US and Europe, are recognising the merits and relative value attractions of borrowers from Asia, where economic recovery appears the strongest and most sustainable.
Asian borrowers have issued more than $45 billion in bonds denominated in G3 currencies this year, according to data provider Dealogic. That compares with just $16.8 billion last year, and already exceeds the previous all-time high of $43 billion in the whole of 2005.
Temasek's rapid deal was launched and priced within 24-hours at 95 basis points over the 10-year US Treasury yield, following initial price guidance of 95bp-105bp. It pays a semi-annual coupon of 4.3% and was re-offered at 99.775 to yield 4.328% to a maturity date of October 25, 2019. Yesterday, in the wake of the pricing in the early hours of the Asian morning, it traded as tight as 89bp.
The total demand amounted to $4 billion and featured 193 accounts, most of which were real-money fund managers, who ended up with 43% of the deal, according to sources familiar with the transaction. Insurance companies and pension funds were sold 25%, central banks 13%, commercial banks 12% and retail 7%. US investors bought 62% of the deal, while Asian and European accounts were allocated 25% and 13% respectively.
Temasek issued a $1.75 billion 2015-dated bond in 2005, which, although pretty illiquid, was quoted on Monday at 120bp over US Treasury yields and 57bp over mid-swaps. The new 10-year bonds, offered at around 80bp over mid-swaps, conceded very little over the swap curve for the extra four years.
Temasek-linked companies ST Engineering, Port of Singapore Authority (PSA) and SingTel Optus have already raised an aggregate $1.5 billion from US dollar bond issues since July. And for some investors these issues provided the clearest reference point. ST Engineering and PSA were bid at 118bp and 115bp respectively on Monday, but all three of these companies are a few steps away from the Singapore government's immediate embrace if things were to go wrong.
Temasek, on the other hand, is a standalone triple-A credit, and for some investors, it is a proxy for the Singapore sovereign itself.
Asian investors might also have gauged the relative value against the Republic of Korea's benchmark 2019 issue, which was trading at 110bp, and the superior Hong Kong credit, railway company KCRC, which was quoted at 95bp.
US investors would have found few home-grown bonds with similar ratings that yield more than Temasek's offering; and unlike ST Engineering, PSA and SingTel Optus, which were Reg-S deals only, they could actually buy the Temasek bond.
The new bonds were sold to US investors under the US Securities and Exchange Commission's Rule 144A and to international investors under Reg-S by bookrunners Deutsche Bank, Goldman Sachs and Morgan Stanley. Surprisingly, no Singapore bank was appointed to share the role.
This is the second offering under Temasek's $5 billion guaranteed global medium-term note programme, which is rated AAA by Standard & Poor's (S&P) and Aaa by Moody's Investor Services. The notes are issued through its wholly owned financing subsidiary, Temasek Financial (I) Limited, are fully and unconditionally guaranteed by Temasek, and will be listed on the Singapore Exchange.
S&P said in a note on Monday that, "the corporate credit rating on Temasek reflects its very strong liquidity position, highly diversified and liquid investments" and pointed to the issuer's "extraordinary support from the Singapore government, if needed". The government made a net capital injection of S$10 billion ($7.2 billion) into Temasek during the fiscal year ended March 31, 2008.
Around one-third of Temasek's investments are exposed to the financial sector and it has increased its allocations to emerging economies in recent years. At the end of July, interim chief executive officer Ho Ching said that the fund's long-term portfolio mix will be: 40% in Asia ex-Singapore; 30% in Singapore; 20% in OECD countries; and 10% in other regions such as Latin America, Russia, and Africa. The fund reported a 66% drop in profit for the year ended March 31 after disastrous investments in bank stocks. And, for the moment, the fund lacks a long-term leader, following CEO-designate Charles "Chip" Goodyear's dramatic departure in July.
Nevertheless, S&P said Temasek's "liquidity, low leverage, and exceptional financial flexibility have so far compensated for these risks". As of March 2009, Temasek's cash and cash equivalents exceeded its indebtedness at the holding company level.
