Singapore Petroleum launched a $184 million convertible after Asia's close on Friday, raising funds to finance the purchase of a stake in Singapore Refining from British Petroleum.
The JPMorgan led deal had a five put three structure, with no call option. The only part of the deal to be marketed on a range to investors was the yield, which was indicated at 1.5% to 1.75% and priced at the wide end because of high investor sensitivity.
Final terms comprise an issue and redemption price of par, coupon of 1.75% and four-year put at par. The conversion premium was fixed at 47% to the stock's S$2.65 close.
While aggressive, these terms are unlikely to be quite so contentious as the two exchangeables for Singapore Technologies last autumn. Singapore Petroleum's convertible has a shorter structure and a higher yield than its two predecessors, although the premium ranks as the second highest on record from Asia since 2001 and the deal is large relative to the company's market capitalization (29%).It also differs from the Sing Tech deals because it was not bid out to a number of investment banks, but mandated to JPMorgan over a week ago.
By contrast, Singapore Technologies/ST Engineering had a seven put five structure and was priced with an issue and redemption price of par backed by a 1.56% coupon. The conversion premium was set at 45.8% and there was a three year call option.
Similarly Singapore Technologies/CapitaLand also had a seven put five structure and was priced with an issue and redemption price of par off a 1.08% coupon. The conversion premium was fixed at 46.66% and there was also a three year call.
Underlying assumptions for Singapore Petroleum's deal comprise a bond floor of 93%, implied volatility of 36.5% and theoretical value of 102%. This is based on a credit spread of 125bp over Libor, zero stock borrow, 1.8% dividend yield and 40% volatility assumption.
Dividend adjustment is either the higher of a 50% pay-out ratio or S$0.60 plus 17% annual increase.
About 35 investors were allocated bonds from an order book of about 70, with a final split of 30% Asia and 70% Europe. There was very little demand for asset swap, accounting for just 15% to 17% of the book.
Proceeds will cover the $140 million purchase of a one thirds stake in Singapore Refining. This will double Singapore Petroleum's stake in the Jurong Island based refiner, which is currently running at full capacity of 285,000 barrels per day. The remaining one third is held by Caltex.
Singapore Petroleum has also indicated it may be interested in buying BP's petrol stations in Malaysia and Singapore, which were put up for sale in January. The group is 49% owned by Keppel Oil & Gas, a subsidiary of Keppel Corp, which in turn is 32% owned by Temasek Holdings, the Singapore government's investment arm.
