Freddie Mac, the US housing agency, sold S$300 million ($166 million ) of five year bonds on Thursday in its first foray into Singapore's maturing bond market. The deal was priced at par to yield 3.22%. Originally planned to be around S$200 million the deal size was increased after nearly S$580 million of demand was generated from the bookbuild.
The yield is around 25bp over five year Singapore government bonds or one basis point under Singapore Libor. The proceeds have been swapped into US dollars giving an all in cost ot the borrower of about 4bp over US libor.
Freddie Mac is a AAA rated US govenment backed entity and some in the market have questioned why they needed to pay 25bp over the Singapore sovereign. "They probably paid 5bp more than they needed to," noted one observer.
The deal was joint lead managed by Deutsche Bank and UOB with HSBC brought in as a co-manager. According to Louise Herrle, treasurer of Freddie Mac, some 20 investors came into the deal with an average ticket size of around S$20 million. Herrle acknowledges however that there was something of a barbell effect with a few very large orders and the rest rather smaller.
Banks took 35% of the deal, asset management companies took 32%, insurance companies took 27% and the remaining 6% was picked up by private clients.
The key question is why Freddie Mac decided to do the deal in the first place. The company has an annual borrowing requirement of $100 billion and this deal is hardly borne out of an economic need. "Freddie Mac altready has a tremendous borrowing programme in US dollars and Euros and so we were looking for opportunities to expand our investor base," says Herrle. "We have been talking to the MAS for some time and seen that the Singapore dollar market has developed quite nicely in recent years in terms of the number and size of issues."
In particular, Herrle claims that Freddie Mac was encouraged by regulatory changes affecting insurance companies' ability to asset swap so opening up a new and important potential investor base to them.
At $300 million and with 20 invesors, the bonds should see some liquidity in the secondary market. Many international issuers in Singapore dollars have seen their bonds disappear into the cavernous buy and hold capability of the local investor base. As a result many issuers have only ever issued once and then not returned.
"Right now we have no firm plans to come back [to the Singapore dollar market]," says Herrle. "But we will continue to monitor the market and we want to see liquidity in our bonds. We have been careful about the allocation of this issue and we have made sure that it has not all gone into buy and hold accounts. If we look at a new issue, it could be an upsizing of this deal."
Freddie Mac's corporate slogan is 'We Open Doors'. It will be interesting to see if this deal opens the door for other US government agencies looking to inject a bit of Southeast Asian spice into their borrowing portfolio.