STT's first benchmark size SGD perpetual of the year gets sizzling reception

THE local bond market is opening up nicely with hot demand for the Singapore Technologies Telemedia (STT) perpetual deal, which has come hot on the heels of Swiss Re's S$350 million 15-year issue at 3.125 per cent  done on Wednesday, pulling in orders of more than S$1.4 billion. 

Orders for STT benchmark size NC 7 perpetual reached over S$2 billion by early Thursday afternoon, leading to the price being tightened to 4.10 per cent from the initial price guidance of 4.375 per cent, from bank messages seen by The Business Times.

Benchmark size for SGD issues range from S$200 million to S$300 million. BT understands that STT, wholly owned by Temasek Holdings, was initially looking to print S$350 million. NC 7 means the perpetuals will not be called or redeemed before Year 7.

The size of the STT issue is expected to be finalised later Thursday night.

"The market is definitely reviving with the Swiss Re and STT deal," said Clifford Lee, DBS Bank head of fixed income.

DBS, UOB, Credit Suisse and HSBC are the bookrunners of the STT issue.

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Swiss Re's initial price guidance for its S$350 million bond was 3.6 per cent because in a roadshow a couple of weeks ago, investors had wanted the coupon to be in the "high threes", said Mr Lee.

"The SGD market was illiquid and less transparent then and in the secondary market, people couldn't make deals," he said.

Swiss Re's bonds have since traded up to 100.785/100.845 on Thursday, giving a yield of 2.95 per cent. Bonds are sold at 100 par and prices move inversely to the yield so when the price goes up, the yield or coupon falls.

SGD volume by Singapore issuers is down 58 per cent year on year to S$4.8 billion from S$11.4 billion as the Covid-19 pandemic takes its toll, with lockdowns in many countries.

This is STT's  second perpetual deal, and comes after Ascott Residence Trust (ART) said in late May that it will not be redeeming its S$250 million, 4.68 per cent perpetual issue on its first call date on June 30.

ART's move sets a precedent for real estate investment trust (Reit) perpetuals. ART said it remains remains committed to paying distributions on the securities. Without the call, the coupon or distribution rate would be reset on June 30 at the swap-offer rate plus the fixed spread with analysts estimating the reset rate to be about 3 per cent under current market conditions.

The ART perps, trading around 99 before the announcement, fell to a low of 97.354 on June 6 and was at 97.438 on Thursday, reported Bloomberg.

It did not tank, said Mr Lee, adding that he had people who told him they would look to buy if the price dropped to the low 90s.

Mr Lee said non-Singapore investors are making a beeline for SGD bonds, noting that they accounted for a quarter of the demand for the Swiss Re bond.

"The (current) attractiveness of the SGD bonds has not even factored in the currency play," he said. If SGD remains strong - and present expectations is that it will - given that it is seen as a safe haven, it will draw in more foreign investors into the bond market, he said.