GLP hybrid

Private banks lap up GLP’s S$500 million hybrid

The perpetual loses equity treatment from Fitch after April 2017, which investors see as a strong incentive for GLP to call the bonds.

Singapore-listed Global Logistics Properties (GLP) on Wednesday evening priced a S$500 million ($385 million) perpetual at a yield of 5.5% after winning strong support from private banks, which took 78% of the deal. That demand was fuelled by a 0.25% private banking rebate and GLP’s strong name recognition among Singapore investors.

The deal, which cannot be called during the first five years, was marketed to investors at the area of mid-to-high 5% and the final pricing was said to be 2% to 3% tighter than what GLP could have achieved in the dollar bond market, assuming it could even have priced a deal given the parlous state of markets.

J.P. Morgan was the sole global coordinator and a bookrunner. Citi, Goldman Sachs and DBS were also joint bookrunners.

GLP, which listed on the Singapore Exchange in October last year, is Asia’s biggest industrial and logistics infrastructure provider and counts Singapore’s sovereign wealth fund GIC as its single largest shareholder with a 50.6% stake.

Fund managers and banks were each allocated 10% and insurance, corporates and others the remaining 2%. Singapore investors were allocated 92% and others 8%. The deal gathered S$780 million of orders from more than 60 accounts.

The company is rated Baa2 by Moody’s and BBB+ by Fitch. The issue is rated BBB- by Fitch and it is expected to receive 50% equity treatment from the rating agencies.

Hybrids, which combine features of debt and equity, have become popular as a funding tool among Asian companies that want to keep their debt-to-equity ratios down to avoid breaching bank covenants and to maintain credit ratings. They are particularly popular in the Singapore dollar bond market, where rates hover near historical lows and investors are looking for a yield pick-up. Hyflux and Cheung Kong have both closed Singapore dollar perpetuals this year.

An unusual aspect of GLP’s hybrid is that it does not include any so-called replacement language, which Fitch defines as a commitment or legally binding covenant that informs investors of the issuer’s intent not to redeem the hybrid at the call date unless it is redeemed using the proceeds of an equally or more equity-like instrument.

GLP is able to call the bonds at par on April 7, 2017 and at every distribution date thereafter. There is a 100bp step up in the 10th year, which makes it more expensive for GLP to keep the perpetuals outstanding.

Rating agency Fitch considers April 2022 — the step up date — as the effective maturity and GLP’s hybrid loses all equity credit from April 2017. This signals to investors that GLP is likely to redeem the bonds on its first call date, based on the assumption that it will likely be unwilling to pay a high coupon to investors without getting the benefit of equity credit from Fitch.

While perpetuals do not have a fixed maturity date, investors take a call as to when the issuer is most likely to redeem the bonds. Based on the yields perpetuals are offering, investors evidently do not think the bonds will be held to perpetuity — or for very long even — though clearly they run the risk of the borrower not calling the bonds.

“Most of the perpetual non-call five bonds in the market are trading as five-year bonds,” said one banker.

The structure used by GLP was similar to one used by Australia’s Origin Energy. Otherwise, the features of GLP’s perpetual were fairly standard. The bonds were issued at par and pay a 5.5% coupon, which was equivalent to a spread of 420bp over the five-year swap offer rate. There is a reset on April 7, 2017 at a spread of 420bp over the prevailing five-year swap offer rate and at every five years thereafter.

GLP can defer interest payments and all deferrals are cumulative. The company is not allowed to pay any dividends if any distributions are unpaid, but there is no dividend pusher.

¬ Haymarket Media Limited. All rights reserved.
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