An acquisition financing and re-capitalization for Singapore Power was completed via an S$3.8 billion ($2.2 billion) four tranche bond issue last night (Thursday). The huge rarity value of the transaction by wholly-owned subsidiary SP PowerAssets (SPPA) meant the Aa1/AA+ rated credit did not have to cede an inch on price in to achieve its desired size.
Instead, lead managers DBS and Morgan Stanley were able to use rapidly building momentum as a lever to revise indicative pricing tighter and eventually price through the levels of higher rated international comparables.
A $600 million five-year tranche was priced at 99.955% on a coupon of 3.8% to yield 3.81%. This equates to a spread of 55bp over Treasuries or 15bp over Libor. Initial guidance had been pitched at 20bp to 25bp over Libor.
A $1 billion 10-year tranche was priced at 99.363% on a coupon of 5% to yield 5.082%. This equates to a spread of 73bp over Treasuries or 30bp over Libor. Initial guidance was 35bp to 40bp over.
On a like-for-like basis, observers say the dollar tranches have priced flat to the holding company's outstanding domestic bond, which has a 2007 maturity quoted at an equivalent Libor spread of 12bp to 15bp. Singapore Power also has a 7.25% April 2005 bond outstanding in the US dollar market, which is currently quoted at roughly 6bp over Libor.
But the main comparables cited by investors are said to have been triple-A rated credits such as GE and AIG. The latter launched a five-year transaction earlier this week at 64bp over Treasuries, while the former has a five-year bond outstanding at 57bp over Treasuries and a 10-year at 80bp over.
SPPA's ability to price through the two is a testament both to its intrinsic credit quality and a lack of available paper. Indeed, completion of the deal provides investors with a new and highly liquid benchmark at the very top end of the Asian credit spectrum after a year dominated by non-investment grade issuance.
Unlike most recent Asian bond deals, the dollar-denominated portions of the transaction were driven by US rather than regional demand. Management is said to have visited 27 US accounts during roadshows and of the 17 investors that went on to participate, a majority put in orders for over $100 million.
The dollar order book is said to have topped the $6 billion mark, with participation from 130 accounts in the five-year book and 170 in the 10-year. By geography, both books are said to have a similar profile with roughly 50% placed in the US, 35% in Asia and 15% in Europe.
Full pricing details on the Singapore dollar tranches were not available as FinanceAsia went to press, but a seven-year tranche is said to have been priced at a Sibor equivalent of 25bp over and a 15-year tranche at a Sibor equivalent of 38bp over. Together the two tranches raised S$1.04 billion ($600 million).
Pricing at these levels is likely to be regarded as something of an achievement given the current secondary market trading levels of domestic gencos such as PowerSeraya and SenokoPower. The two recently completed respective bond deals of S$350 million and S$250 million at 80bp and 90bp over Sibor.
They have both since traded in by about 20bp, but are still quoted at some margin over SPPA. Some bankers initially thought investors would not differentiate between the gencos, which have an implied single-A rating and SPPA, which is rated double-A, one notch below the sovereign.
SPPA's deal follows a restructuring of the electricity industry in Singapore, which saw first the gencos and now the transmission and distribution arm of Singapore Power split off into different companies. SPPA is currently 100% owned by Singapore Power, but the government has announced plans to privatize the group.
Proceeds from the bond deal are being used to finance SPPA's acquisition of PowerGrid from Singapore Power, which transferred a total of S$7.8 billion in assets to the new group. The acquisition has left SPPA with a relatively aggressive debt profile based on its new debt to capitalization ratio of roughly 70%.
In its ratings assessment, however, Moody's said SPPA's debt profile is, "mitigated by the company's projected stable cash flows and it low business risk profile."
SPPA has a complete monopoly on Singapore's T&D business and this in turn will contribute more than 90% of its total revenue and cash flows.
And for the European and US investors, which have recently been plagued by power outages, SPPA's track record must have provided interesting food for thought. With 90% of its power lines sited underground, Singapore is unlikely to suffer national blackouts because of fallen trees. As a result, its T&D network suffers an average power outage of only two minutes per year.
Lawyers for the deal were Shearman & Sterling representing Morgan Stanley and DBS, with Stamford Law acting for SPPA plus Linklaters and Allen & Gledhill as other counsel.