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Temasek launches first bond for retail investors - at 2.7% fixed rate

The interest is about 38 basis points above the five-year Singapore government bond; up to S$200m being offered to retail investors

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Temasek Holdings has launched its first public bond offer for retail investors, with a five-year maturity and a fixed interest rate of 2.7 per cent per annum payable every six months.

Singapore

TEMASEK Holdings has launched its first public bond offer for retail investors, with a five-year maturity and a fixed interest rate of 2.7 per cent per annum payable every six months.

Up to S$200 million is being offered to retail investors. There is another S$200 million placement for institutional, accredited and other specified investors, making for a total offer of S$400 million.

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.

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

The T2023-S$ bond is issued through Temasek's wholly owned subsidiary, Temasek Financial (IV) Private Limited, under its S$5 billion Guaranteed Medium Term Note Programme.

Temasek chief financial officer Leong Wai Leng said: "We are pleased to offer Temasek bonds to retail investors for the first time. This helps Temasek to broaden its stakeholder base and provide Singapore retail investors the opportunity to participate in another retail product . . .

"We issue Temasek Bonds as public markers of our credit quality - this is very much a part of our financial discipline as a long-term investor. They also increase our funding flexibility.''

The net proceeds from the total offering will be used by the group's investment holding companies to fund their ordinary course of business.

Sources expect the offer to be strongly subscribed. At 2.7 per cent, the issue offers a pick-up of about 38 basis points over the five-year Singapore government bond, which is trading at about 2.32 per cent.

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.

Santosh Bukitgar, Credit Suisse emerging market fixed income analyst (private banking research), said: "The extra yield (over SGS) is not bad considering Temasek's status as a quasi-sovereign, AAA-rated credit with a track record of debt market participation. The yield on the 10-year Temasek bond issued in July 2018 has increased 33 basis points since Aug 22, which reflects the increased probability of MAS' reaction to US dollar strength and more clarity on the Fed's interest rate view going into 2019. Thus the pricing of the new five-year note is still relatively attractive. We believe that the demand for an on-the-run five-year note by Temasek should be very high.''

He says credit risk is minimal, "Temasek being one of the few non-sovereign AAA-rated credits''. But he adds that investors will still be exposed to mark-to-market or interest rate risk. "An exit before maturity could incur capital losses if rates trend higher as expected.''

The bond is eligible for inclusion under the CPF Investment Scheme - Ordinary Account. CPF members may use up to 35 per cent of their investible CPF savings to apply for the bonds under the public offer, or to purchase subsequently from the market.

CPF savings cannot be used to apply for bonds under the placement. SRS (Supplementary Retirement Scheme) funds cannot be used to apply for the bond in the total offering.

Retail investors will need a CDP account to apply. Subscriptions under the public offer will be subject to balloting and allocation if the total subscriptions exceed the amount available under the public offer. Applications for the placement offer must be in multiples of S$250,000, subject to a minimum of S$250,000.

Bonds under the public offer are open for application on Oct 17. The public offer will close at noon on Oct 23, and at 8pm for the placement tranche. The bonds are expected to trade on the main board of SGX-ST on Oct 26.

Temasek's issuance is part of efforts to enhance investment options for retail investors. Earlier this year, its subsidiary Astrea Asset Management, launched private equity bonds with a retail tranche which was heavily oversubscribed. Those bonds did not carry a guarantee.

As at end-March 2018, Temasek has S$11.4 billion of bonds outstanding with a weighted average maturity of more than 11 years. On July 26, it also sold US$1.35 billion of 10-year bonds due 2028 at a coupon of 3.625 per cent.