Mapletree Investments, a real estate firm wholly owned by Temasek Holdings, on Wednesday night closed a well-received S$600 million ($477 million) perpetual non-call-five, which bankers hope will help re-open the market and encourage other companies to tap.
Demand for Singapore dollar perpetuals has flagged somewhat, especially after the city-state's regulator, the Monetary Authority of Singapore (MAS), warned retail investors about the risks of investing in the instrument in May. Since then, investors have turned more cautious.
“Unlike the start of the year, investors are looking more closely at credit now,” said one banker. “The days of fixed-for-life bonds are over, and for the Mapletree deal, investors wanted a change-of-control. So, overall, I think the standards in the local currency market are getting closer to the US dollar market.
“We're hoping that the success of the deal will bring out other issuers that have been looking at the market, but I think investors will stay selective and prefer companies with government backing,” he added.
Mapletree's perpetual priced over the Singapore swap offer rate (SOR) and offered a swap rate reset at the 10th year and every 10 years thereafter, as well as a one-time 100bp step-up at the 10th year — so investors effectively looked at the perpetual as a 10-year bond.
Resets and coupon step-ups give the issuer an incentive to call the bonds. Typically, most perpetuals have resets at the fifth year and a step-up at the 10th year. Mapletree also had a change-of-control step-up of 1%, or the issuer has the option to redeem the bonds at par.
The closest comparable was Ascendas’s outstanding perpetual, which has a reset at the fifth year. Those bonds were trading at a yield of 4.75% or 396bp over the five-year SOR. As the 10-year SOR was at 1.658% on Wednesday, the leads — Citi, DBS and HSBC — started out with a price whisper of 5.625%, which was roughly 396bp over the 10-year SOR.
Thanks to strong demand, the leads were able to tighten guidance significantly from an initial guidance of 5.375% to 5.5% to a final guidance of 5.25% to 5.125%, with the hybrid pricing at the tight end.
For investors, the deal offered a 37.5bp pick up over the yield offered by Ascendas’s perpetuals. It also looked like a good deal for the issuer, judging by the fact that the five- and 10-year swap spread was 80bp. Mapletree's perpetuals priced at 346.7bp over the 10-year SOR, inside Ascendas, which was trading at 396bp over the five-year SOR.
A total of 100 investors came into the book, which was heavily driven by private banks, which were allocated 70%. Fund managers took 25%, banks 2%, insurers 2% and other investors 1%. Singapore investors were allocated 70%, Hong Kong investors 24% and other investors 6%.
