Thin pickings for Singdollar bond investors as only blue-chip issuers doing deals

IT SEEMS only blue-chip issuers are able to sell Singapore dollar (SGD) bonds as many investors stung by recent defaults have fled to the hills.

On Wednesday triple-rated National University of Singapore sold five-year S$100 million 1.81 per cent notes, joining a select group which have managed to raise money in the local bond market.

So far in August, eight pedigreed issuers have sold bonds worth S$1.1 billion. In August 2015, there were also eight deals but they raised a total of S$2.5 billion.

Besides NUS which has a Moody's Aaa rating, the other seven also are rated and/or are state-linked.

They include Sumitomo Mitsui Banking Corp, Industrial & Commercial Bank of China, Commonwealth Bank of Australia, Mapletree Commercial Trust, FCOT and Housing & Development Board.

"Investor sentiment is gravitating towards higher quality credits especially those with explicit AAA ratings like NUS," said Aaron Gwak, Standard Chartered Bank head of capital markets, Asean.

Since last month's high profile collapse of oil service provider Swiber Holdings, an unrated issuer, many private bank investors are painfully holding onto a slew of illiquid bonds issued by oil and gas companies back in the heyday of a few years ago, when oil prices were above US$100 a barrel. Oil prices are now hovering under US$50.

Recent SGD deals have mainly attracted institutional investors, who can stomach the low pricing or coupons, a function of the prevailing low interest rates - unlike private bank investors more used to high yield bonds where the coupon is at least 4 per cent.

"Institutional investors are constantly looking for high quality investment opportunities and this is reflected on the final orderbook of just under S$150 million despite the limited amount of time given to investors," said Mr Gwak.

This is a timely issuance taking full advantage of the current low-rate environment, he added.

Another reason for the rather thin local bond market is the cheaper G3 (US dollar, yen or euro) market where activity has been remarkably strong, and so "robbing SGD of some support", said Clifford Lee, DBS Bank head of fixed income.

"On our end, (SGD) market is choppy based on the recent news of stressed issues," said Mr Lee.

In comparison the G3 market is "extremely hungry" with new issues being snapped up, resulting in competitive pricing, he said.

It means the more sophisticated Singapore blue chips which can tap G3 now find it cheaper even after swapping back the proceeds to their local currency.

Some of these offshore deals have been mega-sized, and prices have risen as demand in the secondary market remains strong.

Singapore's PSA in April sold 10-year US$500 million 2.5 per cent bonds. They are currently quoted at 102.07. Bonds are sold at par 100.

Olam International's July perpetual US$500 million 5.35 per cent offering is currently quoted at 100.65.

DBS itself is planning to issue US-dollar additional T1 capital securities, and is meeting investors in Hong Kong and Shanghai, starting Wednesday.