Frasers Centrepoint plans to return to the dollar bond market in the future, after being encouraged by its $200m debut last week. But some bankers were left scratching their heads by the company’s aggressive pricing.
Frasers Centrepoint raised $200m from a five-year bond on Tuesday. After building demand on a two-day roadshow in Hong Kong and Singapore, the Singapore-based property company managed to get away with a coupon of just 2.50%. That was equivalent to 175bp over Treasuries.
The after-swap price was below what the company would have paid to raise funds in the Singapore dollar market. Indeed, it was so far below that one DCM banker who did not work on the deal raised doubts that it was a real bond.
But funding officials at the company, as well as bankers familiar with the bookbuilding process, said the deal was well-distributed. Investors ended up placing around $700m of orders, and eight accounts are understood to have taken half of it — an amount that was fairly well spread between them.
Frasers Centrepoint was, unsurprisingly, happy with the outcome of the bond, which was arranged by OCBC Bank. The funding cost was “attractive” after being swapped into Singapore dollars, said Chia Khong Shoong, chief corporate officer and chief financial officer at Frasers Centrepoint, in an emailed response to questions. It also looked good against its peers in both dollar markets, he said.
“The size versus pricing dynamic was attractive compared to other equivalent transactions in the US dollar and Singapore dollar space,” said Chia.
Quite how attractive was a source of some debate. The day after the deal priced, one DCM banker at a rival bank said he was still unsure quite how the company achieved the pricing it did, arguing that it came as much as 100bp inside Frasers’ Singapore dollar curve.
“This is a new frontier if it has been credibly done,” the banker said.
The value of focus
As bankers familiar with the transaction tell it, Frasers achieved what it did by taking a targeted approach to bookbuilding. The company focused much of its efforts on appealing to asset-swapping financial institutions in Hong Kong, giving them a fixed rate deal they could swap to generate floating rate returns.
Funding officials from the company met 12 investors in Singapore on Thursday, July 7, targeting a mix of asset managers and hedge funds. They put emphasis on US dollar-based accounts in the city-state, making the most of a limited meeting schedule.
But in a move that appeared crucial for the final pricing, they travelled to Hong Kong the following day, meeting eight investors — most of whom were treasurers from local banks.
These investors did not dominate the order book. Official book statistics show Singapore as taking around 67% of the deal. But Hong Kong asset-swapping banks made a major difference to the pricing, said a banker familiar with the deal.
Banks from Singapore and Hong Kong ended up taking around $120m of the bond, and most of those swapped the bond’s fixed rate payments to floating rate, the banker said. That means that only around $80m is realistically free to trade, something that has helped the bond remain stable in the secondary market.
Frasers has seven Singapore dollar bonds outstanding, leading the rival DCM banker to question why investors did not just buy those bonds to swap.
But like other deals in the Singapore dollar market, Frasers’ outstanding local currency bonds are reasonably illiquid. One banker familiar with the dollar bond said it would be hard for traders to take more than S$2m out of the market before sell orders dried up — or pricing changed dramatically.
The new deal was also likely to have been helped by the fact it was unrated, which can lead to sharp disagreements in valuations among investors, as well as by the limited supply of US dollar bonds from Singaporean companies.
In the end, 33 investors participated in the transaction, placing the $700m of orders between them. Banks took 59% of the deal, funds 27% and private banks 14%.
More of the same, please
Frasers has been a fairly regular issuer in the Singapore dollar bond market, selling nine deals since 2012, according to Dealogic data. But when it turned to dollar bond investors just after 9am on Tuesday, it was already attempting to achieve a very aggressive price.
OCBC had sounded out some investors before the official launch, and when the books officially opened they started strongly: pitching a benchmark deal at around 190bp.
‘Benchmark’ typically means $500m for investment-grade borrowers, and becomes a little hazy for high-yield names. For an unrated credit like Frasers, this means it is hard to tell exactly what the company was aiming for. Investors were told early that Frasers only wanted around $200m, said someone with knowledge of these conversations.
That allowed the bond to jump the $150 million minimum size needed for inclusion in the JP Morgan Asia ex-Japan credit index, giving the deal more likely secondary support.
The initial pricing, although already inside the company’s Singapore dollar curve on an after-swap basis, attracted orders quickly after it was announced on Tuesday morning. Within an hour, orders had hit $300m. After lunchtime, they were $500m. By around 4.15pm, the books were closed with around $700m of orders.
It was over an hour later when bankers working on the deal approached investors with final pricing: 175bp over Treasuries, or a 2.5% coupon.
The success of the company’s dollar bond debut means it is now open to a repeat. Chia, the CFO, does note that Frasers will only sell US dollar bonds when the conditions are inviting. But he says Frasers is likely to look to broaden its horizons on future issues by considering different maturities.
For now, the company can look back and consider its dollar bond debut a job well done. Although it may have raised some questions, there is little doubt that for Frasers, the answers were only positive.