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Temasek's 2.7% bond expected to attract retail investors

Public bond offer opens on Wednesday, a day after hot demand by institutional investors

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With Temasek Holdings' 2.7 per cent five-year bond having been heavily subscribed by institutional investors, bets are on that retail demand for this public bond offer, which opened on Wednesday, will be hot as well.

Singapore

WITH Temasek Holdings' 2.7 per cent five-year bond having been heavily subscribed by institutional investors, bets are on that retail demand for this public bond offer, which opened on Wednesday, will be hot as well.

This is Temasek's first public bond offer for retail; the last time it tapped the Singapore dollar bond market was in 2010, when it reached out to institutional investors.

On Tuesday, the sale for the S$200 million tranche for institutional investors was 7.19 times subscribed. Orders reached S$1.438 billion from 76 accounts, said DBS Bank, the global coordinator for the issue. The minimum order was S$250,000.

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The other banks involved in the sale were OCBC, United Overseas Bank, HSBC and Standard Chartered Bank.

The public retail offer is another S$200 million. The offer closes at noon on Oct 23, with the bonds expected to trade on the main board of SGX-ST on Oct 26.

One broker said: "It was heavily subscribed. My client applied for it, but didn't get any." She said that client had been hoping to switch from his fixed deposits to the Temasek bond.

By allocation, the largest went to insurance at 54 per cent, followed by central bank/sovereign wealth fund/agency (24 per cent) and fund managers, banks and corporates (21 per cent). Private banks and securities got only 1 per cent.

The total offer is subject to an option to upsize the issuance to S$500 million, in the event that the public and / or placement offer is oversubscribed.

For retail investors, applications must be in multiples of S$1,000, subject to a minimum of S$1,000.

Individuals may apply through the ATMs of DBS Bank, POSB, OCBC or UOB; they may also apply via Internet banking or the mobile banking apps of DBS or POSB.

Maybank Kim Eng economist Chua Hak Bin said: "The retail tranche will also see strong demand and be several times oversubscribed.

"Many retail investors view the Temasek bonds as being as good as a government-guaranteed paper, with the extra yield as a sweetener."

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The bonds are issued through Temasek's wholly owned subsidiary, Temasek Financial (IV) Private Limited, under its S$5 billion Guaranteed Medium-Term Note Programme.

For comparison: The latest Singapore Savings Bond has an interest rate at the five-year mark of 2.54 per cent. Its average annualised return at the end of the fifth year is 2.22 per cent.

Ang Chung Yuh, iFAST senior fixed income analyst, also expects strong retail demand. "We expect the retail response to mirror the strong demand seen for the (institutional) placement, mainly because of the lack of choices in Singapore's retail bond universe, and the good interest rate on the bonds compared to alternatives such as fixed deposits and government bonds," he said.

DBS's five-year fixed deposit pays 1.35 per cent.

On the robust orderbook from institutional investors, Mr Ang said investor appetite for safer investments is strong. "We are attributing the strong orderbook to a lack of supply and small issue size," he said.

"As you can see from the deal statistics, government entities, insurance firms and financial institutions took up the bulk of the subscriptions, which indicates a high demand for such high-quality bonds, probably for asset-liability management purpose or due to investment mandate constraints," he added.

Investors' risk sentiment has been weak, going by the performance of some other recent issues.

The HDB's seven-year 2.625 per cent is selling below par; it was quoted at 99.119 on Wednesday. DBS' 3.98 per cent perp was quoted at 99.904. Both were sold last month.

Another bank perp, also sold last month, was HSBC's 5 per cent, which has traded down to 100.686 from a high of 101.106.

The risk-return profile of the new Temasek notes is very different from the recent bank perps, said Mr Ang.

The Temasek notes are rated triple-A and have a fixed tenor of five years, he said.

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