PSA embarks on first international roadshows

A new benchmark issuer has emerged from Singapore, as government-owned PSA Corp attempts to lengthen the maturity and investor profile of the Lion city in the international bond markets.

The Port of Singapore Authority (PSA Corp) is to kick off roadshows in Asia next Friday (July14) in a bid to launch Singapore's largest international bond offering to date.

The soon-to-be privatised group is planning to raise up to $1 billion from what is likely be a 10 year transaction led by joint bookrunners JP Morgan and Morgan Stanley Dean Witter. In doing so, it will join a select but fast growing group of domestic entities that are being encouraged to tap the international dollar bond markets by the government.

The move forms part of a drive to make Singapore the region's premier financial centre and mirrors a push to further develop the City state's nascent and increasingly thriving domestic bond market. Virtually all of the City state's former statutory boards are now in the process of being corporatised, privatised and generally weaned off a past reliance on government funds.

To adopt more efficient capital mixes, most have also been working hard to improve low returns on equity (roe) through enhanced gearing levels. As of the end of December, for example, PSA reported an roe of 12.5% up from 11.6% at the end of the 1998 Financial Year and within the government's 10% to 13% target range. When, cash balances are netted off against existing debt, however, its gearing levels drop to virtually zero.

The new bond deal, which will carry the government's Aaa1/AAA rating, follows a debut international dollar issue by Singapore Power (SP) in mid-April and two subordinated debt issues by the Development Bank of Singapore (DBS). Given that JP Morgan was also lead manager of SP's $300 million five year transaction, it seems likely that PSA will follow a similar strategy in its marketing approach.

Domestic demand is, therefore, likely to be used to anchor the deal and generate price tension against international investors that typically demand some form of Asian premium no matter how high the credit rating. Observers argue that it is a strategy which works well as long as deals do not fall prey to completely artificial and aggressive benchmarks. In SP's case, its small issue size made pricing relatively straightforward and the lead claimed that only 68% was placed in Singapore, of which up to 20% comprised European accounts booking tickets out of Asia.

Where PSA is concerned, a final issue amount has not yet been set, but will be a minimum of $500 million and could rise up to the $1 billion subject to demand. Singapore is unlikely to be able to soak up all the paper and so unlike SP, the deal also incorporates a 144a tranche allowing for distribution in the US.

Key to its success, will be the premium it may have to pay to SP's outstanding 2004 line, currently trading at a bid/offer spread of 110bp/95bp over Treasuries. On issue at 99.761, the deal carried a coupon of 7.25% and launch spread of 94bp over Treasuries, equating to 5bp over Libor.

PSA will probably have to pay a 10bp to 20bp new issue premium, but may be able to use the liquidity and rarity value offered by the deal as a lever to keep pricing down to SP's levels.

Investor presentations for the group's S$2.5 billion to S$3 billion ($1.44 billion to $1.738 billion) borrowing programme will open in Singapore, before the team splits into two the following week to cover the rest of Asia, Europe and the US. Pricing has been tentatively scheduled to take place early the week beginning July 24.