Singapore yield curve extended further with LTA bond

Singapore''s Land Transport Authority, has set a new benchmark for the market with a 15-year offering.
Following Singapore's first ever twelve year corporate bond offering from Singapore Power, the city state's yield curve has been extended again with a first ever fifteen year issue by the Land Transport Authority (LTA), the stat board responsible for road and rail construction.

The S$500 million ($274.7 million) transaction was jointly lead-managed by Barclays, Citibank and DBS Bank. Proceeds from the deal will be used to finance LTA's infrastructure development projects.

The new benchmark, which has come ahead of the government's own plans to issue 15 year paper, carries an annual coupon of 4.17%. Since there is no formal benchmark, pricing was referenced against 15 year interest rate swaps, quoted at between 4.1% to 4.2%.

In an attempt to attract non-traditional investors, there is also a S$10 million retail tranche, which may be extended to S$20 million if the interest is there. More and more retail investors are showing interest in the debt capital markets through their Employee Provident Fund (EPF) contributions, and investment banks are keen to tap into this.

Cynthia Teong, managing director of Citibank, believes the deal will spur other potential issuers to try offerings with a long maturity. "This deal not only meets investors' demands, but also heralds a pricing reference for the 15-year sector, which doesn't currently exist," she says. "We expect the market to react with more bond issues of a similar tenor in the near future."

Teong also feels the yields on offer are attractive enough to entice investors, without going out of LTA's own cost targets. "The coupon rate of 4.17% meets the expectations of both issuer and investor," she continues. "We're confident the issue will be a success."

A banker at one of the other leads was also pleased with the deal's reception. "The response has been good and that's because of the issuer's good standing, as well as appetite Singapore's investors have for longer dated paper," he says.

A third local banker feels the deal marks a positive step in the development of the Singapore debt capital market. "I think it's a pretty sound transaction and the pricing is within a reasonable band," the banker says. "It is pretty indicative of what the government is trying to do here in pushing the yield curve that little bit further."

The other recent benchmark offering from Singapore Power was a S$300 million triple-A rated transaction via JP Morgan and OCBC Bank which carries an annual coupon of 4.05%.