SIA's S$500m 5-year bonds will pay 3.03% interest

Singapore

SINGAPORE Airlines' (SIA) proposed offer of S$500 million five-year, fixed- rate bonds may be just what yield-hungry small investors have been waiting for. This bond offering the second in nine years targeted at retail investors.

Ang Chung Yuh, manager of fixed income division at iFast, told The Business Times that he expects strong reception for the national carrier's new bond, "given the scarcity of retail corporate bonds in the market, and Singapore Airlines' healthy credit profile".

He noted that the market turmoil that prevailed for most of 2018 has led to "significant increase" in appetite of local investors for safer credits.

"Although risk sentiment has improved this year along with the rally in global markets, we still see strong demand for high quality, income-producing assets among individual investors, " he added.

SIA, in a regulatory filing on Tuesday, said that the proposed offer - under its S$2 billion medium-term bond programme established on March 13 - includes a placement to institutional investors and relevant persons (each as defined in the Securities and Futures Act), and a public offer tranche that will be open to retail investors in Singapore.

The bonds are expected to comprise up to S$500 million in aggregate principal amount of fixed rate bonds maturing in 2024. If there is an oversubscription, the offer may be upsized to a maximum of S$750 million.

This is quite likely as the orderbook for the placement tranche alone has closed at S$1.036 billion.

The bonds will be issued in denominations of S$1,000 with an issue price of S$1,000, and are intended to be listed on the Singapore Exchange.

SIA last issued retail bonds in 2010, which had matured in 2015. That was S$150 million worth of bonds to retail investors, with a minimum subscription of S$10,000.

An SIA spokesman told The Business Times that it is making the latest offer to retail investors in order to diversify its funding sources and also to provide retail investors with another opportunity to invest in its bonds.

"SIA wishes to tap the retail investor market again, given that its successful bond offerings in recent years were only offered to institutional and private banking investors," the spokesman said. The net proceeds from the offer of the retail bonds will be used for aircraft purchases and related payments as SIA is replacing older aircraft, and growing its fleet, with new technology aircraft.

The coupon rate of the bond is 3.03 per cent, which is comparable to the yield on SIA's 3.75 per cent notes due in April 2024, which was around 3.05 per cent, prior to the announcement of the new issue.

Based on an initial price guidance of 3.1 per cent, the new SIA bond "offers a reasonable return for investors, taking into account pricing comparisons of the existing SIA notes mentioned above, and other comparable bonds in the market", said iFast's Mr Ang.

Investor Dennis Leong is keen on the latest bond offering from SIA because it is of a top grade but on the flipside, he expects the coupon rate to be "very low".

The public offer opens at 9am on Wednesday and closes at 12pm on March 26. Commencement of trading of the bonds on the mainboard will be on March 29.

According to an earlier statement, DBS is the arranger of the S$2 billion medium-term bond programme, and the bank, United Overseas Bank and OCBC Bank are the programme's dealers.

The last retail bond issuance here was in October 2018, when Temasek Holdings launched its 2.7 per cent notes due in 2023.