Singapore borrowers step up to the market

PSA Corp, Singapore Power and Keppel Corp are all about to launch new bond offerings, in a display of the growing importance the Lion City attaches to controlled use of debt.

In a surprising move, Singapore Power and PSA Corp are likely to price their bonds at the beginning of next week. Singapore Power is scheduled to launch a maiden local currency offering on Monday and PSA will unveil its debut dollar-denominated offering on Tuesday.

Singapore Power's sudden appearance in the domestic bond market has caught many observers off guard. Having launched what has come to be regarded as Singapore Inc's first international benchmark in mid-April, the group was not expected to make its domestic debut until the beginning of next year at the very earliest.

With Deutsche Bank as lead manager, the group's new deal will comprise an S$300 million ($171.8 million) three-year transaction. More significantly, it will also mark the first public offering by a government-linked company in the fast growing domestic market.

Competitor banks, while acknowledging Deutsche's astuteness in winning the deal, believe that Singapore Power has only chosen to come to the market now because it has been shown an aggressive underwritten bid. Indeed, treasury officials have always said that the group planned to launch a domestic deal either just prior, or just after, the sale of its two generation units, PowerSenoko and PowerSeraya.

Total annual funding needs for the group have been estimated to total about S$400 million to S$500 million, of which about $200 million to $300 million has been earmarked to fund the international power portfolio and the remaining S$100 million or so for domestic businesses. Of overriding importance has been a desire to maintain a conservative funding approach, with the aim of only raising money when it is needed, rather than letting it sit in the bank.

Deutsche officials attribute other bankers' remarks to sour grapes at losing a mandate which they say was only awarded after beauty parades. Pricing is expected to come at around the 3.95% level.

None of Singapore's statutory board issuers have previously issued paper at a three-year maturity, choosing instead to lengthen out to five or seven years, where Singapore's large insurance fund investors prefer to pick up paper. Bankers cite the nearest benchmark as a February 2004 transaction by the Housing & Development Board (HDB), which is trading a yield of 4.04%, or a five-year maturity by Jurong Town Corporation (JTC) at 4.41%.

Most argue that 3.95% is aggressive on the assumption that a GLC should trade a few basis points wider than a statutory board. On a dollar-Libor basis, the deal also comes in a lot tighter than its international deal on a like-for-like basis. Its $300 million April 2005 transaction, for example, is currently trading at about 7bp to 8bp over mid swaps, compared with a theoretical level of 1bp to 2bp through Libor for the new domestic deal.

PSA to price flat to SP

The international deal is also providing benchmark pricing for the launch of Aa1/AAA-rated PSA Corp's deal next week. Led by Morgan Stanley Dean Witter and JP Morgan, roadshows will finish in the United States later today (Friday).

Having set out on roadshows with the intention of raising a minimum of $500 million, the issue amount is now likely to be raised by about $250 million on the back of strong investor demand. In terms of maturity, the company was open to either five or 10 years, and is said likely to settle for five years at the preference of Asian and European investors.

Where pricing is concerned, it is also likely that there will be no new issue premium. Although the leads say that there is no official indicative range, observers report that potential pricing straddles the existing deal by about a basis point either way.

When Singapore Power first came to market, most observers concluded that it had set an aggressive but sustainable benchmark. Deliberately raising only $300 million and using domestic investors as an anchor, the group was able to secure a launch spread of 94bp over Treasuries, equating to 5bp over Libor on a coupon of 7.25%.  Since then it has widened slightly to about 111bp to 106bp.

At the time, many wondered how a larger transaction that would need greater international participation might fare. In the longer term, however, many observers now believe that Singapore should be able to bring price down to the levels commanded by Japan's top credits. Japan Bank for International Co-operation (JBIC), for instance, has a five-year line outstanding trading at about 1bp to 2bp through Libor.

Bankers say that one of the reasons why demand for the issue has been so strong is because investors believe it has great value compared to other triple-A rated names. "They are not analysing it against other port credits but triple-A rated and benchmark euro names," comments one banker.

On this basis, bankers cite Italy as an example. It is rated AA/Aa3, and has five-year paper at the 9bp to 10bp mark through Libor.

Further underpinning the deal is the fact that PSA's proposed privatization is unlikely to undermine its sovereign credit ceiling. In its assessment, Moody's categorically states: "The rating assumes no implications of government support."

What it does say, by contrast, is that, "PSA is the industry leader for container transshipment services and is poised to provide global container services in an information age. PSA also demonstrates solid management, strong financial performance and exceptional liquidity."

Further down the domestic pipeline, Singapore's most diversified conglomerate Keppel Corporation is believed to have mandated Citicorp for its first public domestic bond deal. Having been watching the market for some time, the company is said to be considering an S$250 million five-year offering.



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