Bond is­suance falls, bond mar­kets pick up

Pri­mary bond of­fer­ings from Sin­ga­pore-domi­ciled is­suers reached US$12.8B in the first half of 2017.

Singapore Business Review - - CONTENTS -

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

Janet Jin

An­drew Wong

Louis Ng

Sources: Thom­son Reuters Sin­ga­pore dol­lar bonds vol­ume - top macro in­dus­try - 2017 YTD

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