Bond issuance falls, bond markets pick up
Primary bond offerings from Singapore-domiciled issuers reached US$12.8B in the first half of 2017.
Singaporean companies have cut back on local issued bonds to finance operations and have moved towards more overseas borrowing and perpetual bonds, new data shows. Meanwhile, Singapore local banks remain the largest bond issuers, accounting for 61.8 % of the market in the first half of 2017. Property developers remained active issuers in order to refinance maturing debt and raise debt capital for overseas expansion, whilst smaller companies offering higher yields also came back to tap the local capital markets.
Primary bond offerings from Singapore-domiciled issuers reached US$12.8B in the first half of the year, translating to a 23.2% decline in proceeds after a strong momentum sustained over the same period last year which recorded $16.7b in primary bond offerings. This is due to the decision — and, arguably, preference — of local companies to tap both domestic and offshore bond markets to raise funds. “The Singapore DCM (debt capital market) is dropping in the past few years,” said Louis Ng, head of APAC fixed income at Dealogic. “Volume and activity drop 20% and 30% year-on-year, respectively.”
During the second quarter of 2017, proceeds reached US$4.5B, or a 45.8% decline from the first quarter of 2017 and down 41.7% from the second quarter of last year. Singapore issuers tapped the Us-dollar bond market and raised US$3.3B, an increase of 5.8% in proceeds compared to the same period in 2016. Moreover, perpetual bonds issued by Singaporean companies totalled US$1.4B to date, up by 49.3% from the same period last year.
Thomson Reuters senior business communications executive for APAC Janet Jin noted that United Overseas Bank is currently the most active issuer/borrower in terms of bond proceeds this year, capturing 13.9% market share worth US$1.8B, including the company’s issuance from its subsidiaries.
DBS Group Holdings currently leads the Singaporeissued bonds underwriting this year with related proceeds of US$3B, accounting for 23.2% of the market share. Oversea-chinese Banking Corporation Limited (OCBC) and HSBC Holdings, meanwhile, rounded out the top three spots with 11.9% and 9.3% market shares, respectively. Data from Thomson Reuters revealed that DBS Group books an estimated US$12.9M in fee revenues, and accounted for 23.7% of Singapore’s bond fee pool. Imputed underwriting fees from bond issuance by Singaporean companies, moreover, totalled US$54.5M, down 33.8% from the first half of 2016.
Thomson Reuters further revealed that Singaporean firms from the financial sector tapped the bond markets and raised US$7.9B, translating to a 19% decline in proceeds compared to the same period last year. Financials, therefore, captured 61.8% of the total bond proceeds issued by Singaporean borrowers.
HSBC Holdings issued its debut Singapore offering of Additional Tier 1 capital in June this year for S$1b (US$724.4M), the largest issuance this year in the
During the second quarter of 2017, proceeds reached US$4.5B, or a 45.8% decline from the first quarter of 2017 and down 41.7% from the second quarter of last year.
Singapore-dollar bond market, following a string of European banks tapping the SGD bond market this year, including Commerzbank AG, Landesbank Badenwuerttemberg (LBBW), and BNP Paribas.
Deals: Who borrowed where?
For Singapore-dollar bonds, OCBC Bank was the sole lead manager and bookrunner of the Frasers Centrepoint Limited deal priced at S$348m, 10-year bonds at a coupon rate of 4.15% on 16 February 2017, and upsized the issue size by another S$50m to S$398m on the following day. OCBC Bank embarked on a S$52m re-tap in April 2017 and a S$50m re-tap in May 2017, bringing the total to $500m. These followed OCBC Bank’s other sole mandates from Frasers Centrepoint Limited in the past year: a S$250m, 10-year 4.25% issue in April 2016 and a US$200M, 5-year 2.5% issue in July 2016 (Frasers Centrepoint’s debut USD bond issue).
In the Financials sector, OCBC Bank was joint lead manager and bookrunner of the deal with BNP Paribas priced at S$250 million for a 7.5-year bond issue at a coupon rate of 3.65% in March 2017, as well as Commerzbank’s S$500 million, 4.875% 10-year non-call 5-year issue in February 2017.
Andrew Wong, vice president for fixed income research at OCBC Bank, noted that in his firm’s mid-year 2017 outlook for Singapore that there is a partial revival of
SGD bond market activity in 1H2017. “In addition to volumes picking up, we saw an improved breadth of issuers including well-known names, foreign financials as well as the return of smaller higher yielding issuers.” he said.
He further noted that the solid issuance activity in the first half of 2017 is mainly due to issuers looking to lock in the low cost of debt in early 2017 with the global reflation outlook still promising. Similarly opportunistic behaviour seen in late second quarter of 2017 when Singapore Dollar Swap Rates (SDSR) plunged to year-to-date lows (10 year swap rates fell to 2.10%), whilst throughout the year, we saw a significant recovery in demand for SGD papers with investors moving on from the high profile defaults in the embattled O&M sector in second half of 2016, and ample market liquidity looking for yields.
Some of the players in the Singapore-dollar bonds category include the Housing and Development Board’s issuance of S$900m, UOB’S S$750m issuance, as well as Singapore Airlines Limited and Mapletree Treasury Services’ issuances at S$700m.
This also includes foreign financials like Huarong Finance,, and the return of smaller higher yielding issuers like Centurion Corp Ltd, Tuan Sing Holdings Limited, and Chip Eng Seng Corp Ltd. City Developments Limited (CDL), through its wholly-owned subsidiary CDL Properties Ltd (CDLP), has successfully launched the first green bond by a Singapore company.
The two-year senior secured green bond has raised S$100 million at 1.98% fixed rate due 2019. The investors comprised mainly financial institutions and fund managers. The green bond is issued under the CDLP S$700 million secured Medium Term Note (MTN) Programme first established in 2001. DBS Bank Ltd. (DBS) is the sole bookrunner on this transaction.
Financial, real estate
The country’s real estate sector, meanwhile, accounted for 9.9% market share, raising US$1.264B in proceeds and representing a 25.4% increase year-on-year from the first half of 2016. Government and Agencies,
Energy and Power, and Industrials captured 7.8%, 5.8%, and 4.6%, respectively, raising US$2.3B in combined proceeds. Consumer Staples; Consumer Products and Services; Healthcare; Telecommunications; Media and Entertainment; and Retail make up the rest of Singapore’s debt capital market volume in the first half of 2017 for a combined total of over US$1.3B in proceeds.
Activity in the Singapore-dollar bond market, however, is picking up pace in the second quarter of 2017. SGD bond market reached S$6.7b (US$4.8B) in 2Q2017, increasing by 35.4% in proceeds from the previous quarter as number of primary issuance grew by 45%.
This brings total Singapore-dollar bond issuance to S$11.6b (US$8.3B) so far this year, or 7.1% lower compared to the proceeds raised in the first half of 2016. In terms of macro industry, the financial sector remained the top, accounting for 53% of the SGD bond market, raising S$6.2b (US$4.4B) so far this year.
Real estate and Government & Agencies followed behind with 16.1% and 14.6% market shares, respectively. Foreign issuers tapping the Singapore-dollar bond
market raised S$3.7b (US$2.7B) thus far, translating to a 13% decline in proceeds from the same period last year at S$3.4b, as number of primary issuance slowed down by 54.8%.
APAC outlook, China role
In terms of outlook and trend, Singapore bond markets may likely to continually be dominated by the real estate and financial sectors for the rest of 2017, if the first half of the year is any indication. OCBC research showed that in the first six months of the year, property developers remained active issuers in order to refinance maturing debt and raise debt capital for overseas expansion.
Regionally, Dealogic’s Ng noted that that in 2017 so far, China is accounting for 57% of Asia ex Japan International issuances, marking the first time this kind of issuance is surpassing the 50% benchmark.
“Chinese issuers have changed the game in Asia somewhat, with more new players joining the market and reducing fees,” said Ng, noting that this is making the market more challenging. He mentioned that the average number of bookrunners on Chinese International transactions has increased from 4 in 2010 to 6 in 2017.
For instance, China Cinda Asset Management issued a $3.2b preferred share with 23 bookrunners on the deal, the highest number of bookrunners on the same deal in Asia ex Japan International market, which again is squeezing fees in the region.
Moving forward, Ng is expecting that Asia ex Japan International DCM will surpass the previous full year record set in 2014 at $280.9b. For reference, Asia ex Japan International DCM has reached $199.8b in the first half of 2017, increasing by 66% compared to the same period in 2016 which is the highest year to date volume on record.
This outlook and impending trend may be more apparent in the next few quarters and years with the launch of the Bank of China’s new Debt Capital Market Centre in Singapore in June this year. This will help boost financial and capital market activities in Singapore. The new centre will help promote Chinese bond market to investors in the region by helping Bank of China boost its underwriting business for panda bonds.
In 2017 so far, China is accounting for 57% of Asia ex Japan International issuances, marking the first time this kind of issuance is surpassing the 50% benchmark.
Deal #1: frasers Centrepoint Ltd has announced a new 10year senior unsecured Sgd-denominated bond issue.
Deal #2: City Developments Limited offers the first Singapore dollar two-year Green bond indicated at a 1.98 percent coupon
Singapore debt capital market league table
Singapore DCM volume by macro industry breakdown - 2017 YTD
Sources: Thomson Reuters Singapore dollar bonds volume - top macro industry - 2017 YTD