JTC extends the curve

The Jurong Town Corporation has become the first issuer in the Singapore bond market to successfully sell a 12-year bond.

Twelve years? No problem. That was the reaction from investors when the Jurong Town Corporation (JTC) successfully launched and closed the tender for its first 12-year bond deal. Previously the longest dated security denominated in Singapore dollars was a government 10 year. But by creating demand at the underwriter level, JTC managed to sell a bond two years longer, with a sub 5% yield.

The yield for the bonds has been set at 4.826% with a cut off yield at 4.87%. This equates to a spread of 42 basis points over the government 10 year. "Demand for this paper was very strong from investors," says Cynthia Teong, managing director of capital markets and trading at Citicorp Investment Bank (Singapore). "This is a new duration for them and with short term interest rates so low, investors were willing to go out two more years for a significant pick up in yield without really taking on any more risk."

Lead manager of the transaction was Oversea-Chinese Banking Corporation (OCBC) which took 40% of the deal. Co-lead managers were Citicorp Investment Bank (Singapore) and JP Morgan Securities Asia. Both Citibank and JP Morgan took 30% each of the transaction.

Aggressive tender

Key to the deal was the aggressive tender structure that JTC used to sell the bond. Institutions were invited to submit indicative bids of the yield to maturity that they thought the market could take. Each bidder submitted a single bid for the entire amount of the deal and separately, several bids forming an aggregate of a minimum bid commitment.

This aggressive tender process has caused some consternation in the market with some banks complaining that it inhibited market efficiency as it put too much pressure on the intermediaries to secure the mandate and not find a market clearing price. It also allows banks to place the bonds straight on to their balance sheets, thus damaging the development of the secondary market.

Nevertheless, sources say that around 30 separate accounts took the bonds from the three successful bidders. Traders also report that there has been some liquidity in the bonds in early trading Wednesday.

"This first 12-year Singapore dollar bond issue by JTC will lengthen Singapore's debt capital market 10-year yield curve and provide a benchmark for other corporate debt issuers," says Ko Kheng Hwa, CEO of JTC. "Although this is the first 12-year bond to be listed in Singapore, the tight bids signaled strong investor interest. We are pleased with the tender results and will consider tenors beyond 12 years in our future bond issues."

This deal is the fourth Singapore dollar bond issue that JTC has issued under its S$4 billion ($2.278 billion) MTN programme. With this deal, some S$1.3 billion in local bonds has been issued by JTC making it one of the most active participants in this rapidly developing new market. This deal has been split into a S$195 million tender offer and a S$5 million public offer. The public tranche is being made available to members of the public who can bid for allocations at ATM machines and bank branches throughout Singapore until 10am on October 23.

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