Broker's take: Offer to swap Aspial 2018, 2019 notes for 6.25% notes due 2021 'not compelling', says OCBC

HOLDERS of Aspial Corp's 5.5 per cent notes due in November 2018 and 5.05 per cent notes due in June 2019 are better off tendering their notes for cash instead of exchanging them for new 6.25 per cent notes due in October 2021, OCBC Credit Research has said.

Property developer and jeweller Aspial Corp offered noteholders the two options on Thursday to improve its debt position.

OCBC Credit Research analyst Wong Hong Wei wrote in a report on Thursday: "Option A (to sell for cash) looks favourable if the bonds continue to trade below par. However, Option B (exchange for 2021 notes) does not appear compelling, noting that several higher yield developer credits are trading well in excess of 6 per cent for similarly tenured three-year paper."

"Otherwise, we continue to stay overweight ASPSP 5.5 per cent 2018s with Aspial confident to repay this with cash. We also turned overweight on ASPSP 5.05 per cent 2019s given Aspial's commitment to refinancing."

Mr Wong told The Business Times that a fairer pricing for the 2021 notes may be around 7 to 9 per cent instead of the 6.25 per cent coupon rate being offered: "The range I am giving is quite broad because the precise high-yield appetite is hard to pinpoint with the drought of high-yield issuances in recent months. Aspial's bonds are relatively illiquid and do not trade often, and new high-yield issues, if any, have recently been repricing the secondary issues by an amount that is hard to determine."

Mr Wong also flagged that Aspial's previous tender in March to exchange the S$100 million tranche of 2018 notes for 5.9 per cent notes due in April 2021 was not well-taken up. In the end, noteholders owning just S$26 million in principal value of notes accepted the swap. Alongside that, another S$24 million new 5.9 per cent 2021 notes were issued. This tranche of 2021 notes trades below par.

Interestingly, in Thursday's offer, Aspial is giving noteholders a higher incentive to do a swap for longer-dated notes instead of cash. This is despite its stated aim to "reduce negative carry", hence the option for noteholders to swap all of the outstanding S$74 million 2018 notes and up to S$10 million of the S$123.5 million 2019 notes for cash.

If noteholders tender for cash, the early exit fee is 0.1 per cent of the principal amount of the tendered notes. But the fee is 0.5 per cent if they choose to swap their existing notes for the longer-dated 2021s.

Mr Wong continues to keep Aspial at a "negative" issuer profile as net gearing remains elevated, but said: "With Aspial looking to redeem the said bonds and intending to use cash proceeds from settlement of its Australian projects to repurchase the remaining term notes and bonds to improve its debt position, we think this will be highly favourable for Aspial's credit profile."