The Business Times

SGD bond market starting 2019 with a bang

Published Wed, Feb 6, 2019 · 09:50 PM


THE local bond market is starting 2019 on an upbeat note with January's issuance volume up 32 per cent at S$3.5 billion and prices hitting new highs on the back of improving sentiments towards fixed-income assets.

Another highlight was Chinese banks muscling into Singapore's capital market with a new kind of issuer, a trend that market watchers say could continue as Chinese companies look to diversify their investor base.

On Jan 25, Chongqin Banan Economic Part Construction Co - a Chinese local government financing vehicle (LGFV) - made its international debut on the Singapore dollar bond market with a 2-year S$150 million 4.35 per cent issue.

January's volume saw total SGD issuance of S$3.5 billion from 11 deals including two hefty transactions from statutory boards - the Land Transport Authority of Singapore (LTA) and the Housing & Development Board (HDB).

HDB sold a 10-year S$600 million 2.675 per cent bond followed by LTA's massive 40-year S$1.5 billion 3.380 per cent deal.

With bonds back in favour since November, investors' appetite has led to many bonds prices rallying.

The Markit SGD corporates total-return index stood at 125.6691 on Feb 2, easing off its 125.7049 high on Jan 31, according to Bloomberg.

UBS' 5.875 per cent perp issued in November has surged to 102.131 on Feb 1 from its 99.750 low on Dec 13.

HSBC's 5 per cent perp sold last September has recovered to 100.538 on Feb 1 from the low of 99.485 on Nov 22.

Priced on Jan 29, Suntec Reit's 6-year S$100 million 3.355 per cent rose to 100.036 on Feb 1.

CapitaLand Mall Trust's 7-year S$100 million 3.15 per cent was higher at 100.034 on Feb 1; it was priced on Jan 30.

Coming from the lows of 2018, risk sentiment in the credit markets has improved since the start of the year, said Ang Chung Yuh, iFast senior fixed income analyst.

"Furthermore, with market participants generally expecting the (US) Fed to be more patient in tightening monetary policy, the appetite for fixed income assets has increased significantly. Investor demand for credit has also been buoyed by concerns over global economic growth," said Mr Ang.

The buoyant market is likely to attract more Chinese companies looking to diversify their investor base, say fixed income players.

"Many Chinese companies want to do bonds because they want to diversify and gain access to the SGD markets as an alternative (to the USD and CNH markets); they also want investors' diversification to get better pricing," said one fixed income banker.

Aaron Gwak, Standard Chartered Bank head of capital markets, Asean, said: "We definitely see a keen interest for Chinese securities firms and banks to expand their footprint into other currencies."

Chongqin Banan Economic Part Construction Co made its SGD debut last month with seven banks involved, of which 6 are Chinese. The non-Chinese bank, StanChart, acted as the deal's joint global coordinator, joint lead manager and joint bookrunner.

"The SGD bonds market, as one of the most matured and developed markets in Asia, is a natural choice for Chinese issuers to raise funding outside of USD and CNH markets," said Mr Gwak.

We believe both StanChart and other Chinese financial institutions are well positioned to assist our clients in China to tap this alternate source of funding, he said.

"This is the issuer's debut issuance in the international capital markets, and we are pleased to have played an important role to introduce a Chinese LGFV issuer to the SGD markets," said Mr Gwak.

This is the first Chongqing-based issuer which accessed the SGD capital markets since the initiation of Singapore's third government-to-government project with China - the Chongqing Connectivity Initiative - was launched in 2015, he said.

Investors' confidence was bolstered by a standby letter of credit (SBLC) - akin to a guarantee - from the Shanghai Pudong Development (SPDB) Bank Hong Kong branch.

Given that this is a debut LGFV issuance in the SGD capital markets, the issuer, in consultation with the joint global coordinators, decided to tap the markets with a SBLC issued by SPDB Hong Kong Branch, said Mr Gwak.

"This credit enhancement in the form of a SBLC from a Chinese bank, common in the USD and CNH space, is also a first-of-its-kind in the SGD space," said Mr Gwak.

"The transaction received warm responses from Singapore-based institutional and private bank investors. With this successful transaction, we hope to see more Chinese LGFV to consider SGD as a viable financing option."

Beijing has increasingly relied on such local government financing vehicles to tap the bond market to fund the country's infrastructure projects, noted iFast's Mr Ang.

"At the same time, we have seen a significant increase in offshore debt raising from Chinese issuers in recent months, while the onshore financing amount remained low. So altogether, the above does suggest that Chinese issuers are increasingly looking outwards for their funding needs," said Mr Ang.

Should bankers worry about Chinese banks muscling into their space bringing deals to the SGD market?

"The Singapore and SGD bond markets are very open and any properly licensed bank can participate. This has always been the case and this transaction is just a further testament to that," said Clifford Lee, DBS Bank head of fixed income.

As January goes, so goes the year? Mr Gwak hopes so: "We remain optimistic that it will be a strong year for the SGD bonds market, for both the established blue-chip issuers as well as new names entering this market."


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