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LTA's S$1.3b bond sale gets strong reception amid weak market

Wednesday, September 16, 2015 - 18:46

THE Singapore-dollar bond market is falling but that has not stopped the Land Transport Authority (LTA) from selling more debt.

Last Thursday, the LTA sold a total of S$1.3 billion bonds in two tranches - five-year and 15-year. Due to strong demand, both tranches were upsized to S$650 million from the initial S$400 million.

"Both started at S$400 million, demand was good, so upsized to S$650 million," said Clifford Lee, DBS Bank head of fixed income.

DBS handled the sale of the five-year bonds which paid a coupon of 2.73 per cent while OCBC Bank sold the 15-year tranche which has a 3.51 per cent coupon. Both will start trading on Sept 18, 2015.

Last month, the LTA sold S$1.2 billion bonds, also comprising two tranches - seven-year and 12-year.

Demand for the latest deal came from insurers, asset managers and banks, similar to the August sale.

One banker said the insurance companies accounted for the bulk of the demand for the 15-year bonds because of the need to match their liabilities, and that it was the longest tenure issue this year. "It was the longest dated fixed rate issue so far this year."

For insurance companies, it's "not about current market conditions". They are looking for long-dated bonds as they need to match their policies which could be 15, 20 or 30 years, she said.

Investors are cautious but are also very "cashed up", said Mr Lee.

Current volatility makes it hard for new deals to be done but for statutory boards such as the LTA, with their triple-A status, issues will still be sold at the right price, he said. "Singapore is an all yield driven market, 3.51 is attractive to the market," he added.

The LTA sale also points to the general illiquidity of the local debt market, he said.

Institutional investors are the take-and-hold type, so the quotes seen are likely to get only a few trades done, he said.

As for the overall weakness of the corporate bond market, as Singapore interest rates increase, bond prices will go down, said Mr Lee.

The Markit iBoxx Singapore corporates total return index stood at 112.5119 on Tuesday, down one per cent from the all-time high of 113.6704 on Aug 11.

The key three-month Sibor (Singapore interbank offered rate) rose again on Wednesday to 1.13758 per cent, up 0.00175. The three-month Sibor, which is used to price home loans, is now up 2.8 times from last year's low of 0.41 per cent.

Some recent issues while off their highs aren't too badly off.

Ezion Holdings five-year 3.65 per cent issued in July was bid around 100.444 down from a high of 100.925.

Aspial's five-year 5.25 per cent retail bond sold last month and traded on Singapore Exchange closed at 101.6 on Wednesday.

Bonds are issued at par 100.

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