Staying Afloat In The Pool of SGD Perps
Bumper crop of perpetuals hit the street as liquidity fuels the mad grab for yields. Abating credit concerns locally makes perps, quite suddenly, the flavor of the year so far for the retail
http://www.colourbox.com/preview/1754388-655376-life-saver-buoy-ring-floating-in-turquoise-swimming-pool.jpg
Obtained without permission.
segment.
You get worried when you see Genting do a retail tranche, particularly after their institutional tranche is still under water but Capitamalls is flying quite high (maybe . Yet it is undoubtedly part of the government’s push to get the man on the street investing. Initiative sprung up last year quite suddenly in Parliament and voila, the market has taken off. http://www.asiaone.com/News/The%2BBusiness%2BTimes/Story/A1Story20110111-257705.html
And of course our country’s push to become an Asian capital markets powerhouse. http://www.mas.gov.sg/news_room/statements/2012/Keynote_address_by_Mr_Ravi_Menon_MD_MAS_at_IMAS.html
Today Ascendas launched their perp issue. Not a bad one but I am still sore over missing SingPost (6 times oversubscribed !) 2 months back and will not have anything to do with it, not with QE3 half hanging in the air. Perps are meant to be traded too, you know.
Hey but one perp is not another. So I thought I would do up a table of perps issued this year to compare the apples and oranges and lemons out there. I would qualify that this is perhaps not the most comprehensive or accurate piece of information you would get, given that my perp expert friend has gone back to Israel for Passover holidays, thus perhaps its best viewed as a private opinion. Also threw in some of the subs, retail bond and reit issues for comparisons.
| CURRENT | ||||||||
| ANNOUNCE | ISSUER | CPN | TYPE | SIZE | YIELD | RATING | CALL SCHEDULE | MIN DENO. |
| 10-Apr-12 | ASCENDAS PTE LTD | 4.75% | PERPETUAL NC 5 | 300 MIO | Refix at Yr5 at SOR+351.2bp | 250K | ||
| 1-Mar-12 | GENTING SINGAPORE PLC | 5.13% | PERPETUAL NC 5 | 1800 MIO | 5.19% | Baa3 | Flat Step up 100 bp in Yr10 | 250K |
| 8-Mar-12 | MAPLETREE LOGISTICS TRUST | 5.375 | PERPETUAL NC 5 | 350 MIO | 5.15% | Baa3 | Refix at Yr5.5 at SOR+418 bp | 250K |
| 24-Feb-12 | SINGAPORE POST LIMITED | 4.25 | PERPETUAL NC 10 | 350 MIO | 4% | Refix at Yr10 at SOR+369.2 | 250K | |
| 22-Feb-12 | OLAM INTERNATIONAL | 7% | PERPETUAL | 275 MIO | 6.95% | Refix at Yr10 at SOR+596.5 bp | 250K | |
| ???? | NEPTUNE ORIENT LINES LTD | PERPETUAL | 150 bp step up on Yr10 | 250K | ||||
| 5-Jan-12 | CAPITAMALLS ASIA TREASURY | 3.80% | SENIOR NC 5 | 400 MIO | 3.75% | Coupon Step Up to 4.5% | 1K/1K | |
| 16-Jan-12 | GLOBAL LOGISTICS PROPERTY | 5.50% | PERPETUAL NC 5 | 250 MIO | 5.25% | BBB- | Refix Yr5 at SOR+420 bp | 250K |
| 31-Jan-12 | DAH SING BANK LTD | 4.88% | 10Y SUB LT2 NC 5 | 225 MIO | 4.50% | Baa1/BBB | Refix Yr5 at SOR+376 bp | 250K |
| 6-Mar-12 | BANK OF EAST ASIA LTD | 4.25% | 10Y SUB LT2 NC 5 | 600 MIO | 4.20% | A3/A- | Refix Yr5 at SOR+308.5 bp | 250K |
| 19-Jan-12 | ASCENDAS REAL ESTATE INV | 4.00% | 10Y SNR | 600 MIO | 4.50% | Baa1 | 250K | |
All of them seem to be doing well compared to launch price.
Genting appears to be the only perp trading under water, probably due to the combination of its issue size being the largest bond issue in history and its poor structure with only a Flat Step Up of 1% on Yr 10 which does not compensate for prevailing interest rates then.
Ascendas threw in 2 step ups for good measure. 100 bp on Yr 10 and another 100 bp on change of control (JTC parentage)
The NOL issue seems to have hit a wall which is a good sign that the market is getting more Credit Savvy ! and will not buy without a change of control clause (look what happened to Chartered Semiconductor !… now called Globalfoundries)
What I Like To See In A Perp
Best method of evaluation has always been the fair and equitable rule.
No, we are not interest rate idiots. No, we are not dumb enough to think that a 100 bp step up makes up for everything on year 10.
No, we will not be sold a 5Y callable with no step up and told its a 5Y bond.
No, we are not unaware that credit spreads matter.
And no, multiple calls cost money and we must be paid for it.
The thought of buying a perpetual frightens me. The idea of a bond that goes on forever, taking my money with it for the rest of my lifetime. I like to buy a loaded perp. Loaded with lots of life buoys for the investor. That is a caring perp, a thoughtful perp, a perp that you can sleep with.
That’s all for now…. when perp expert gets back, he may have more to say.
I always felt that the risk premium for a perp must be much higher than a 30 year issuance because even though it may discount the same way, the non repayment of principal gives management funny ideas of who to sacrifice when the going gets rough. (Quite apart from my very long term SGD interest rate view and very long term SGP credit view). If there is a product NOT suitable for retail, it is a perp? no? MAS?
All are non cumulative these days. As a retail product, it is just another funky preference share. It is an occupational hazard to be a skeptic, I guess.
As long as someone makes them, there will be a buyer…
I think its a compounded problem – everyone is yield hungry and the fact that many equity buyers who were burnt a few years back thinks that bonds are the way forward. I don’t think many of these retail investors understand what credit and interest rate risks is… The more things change the more they stay the same.
But I also think that it is a step in the right direction giving the retail investors the alternative investment/instrument that is probably safer than the “structured stuff” that banks market. Preference shares used to be the rage over a decade ago with many people treating them like equity to punt.
Let the market mature in time and for people to realize that property may not be the only way to go.
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