Wrote about this some months back.
Its been a ground breaking year in SGD Perps. Kudos to OCBC for pulling off the lowest ever coupon on a perpetual bond at 4% and UOB for slashing its coupon burden down to 3.15%, the lowest I have seen for a sub debt so far in Singapore.
What a mad rush when Genting is still under water ! Last saw GENSSP5.125 (Baa3/BBB) quoted at mid 98 cents today.
OCBC is still a happy leverage bond at 60% ? financing. So returns will still be around 10% on capital. Not a bad deal till you read the fine print. Its been the same trick up the sleeve for the past years and everyone still falls for it. OCBC does not have a refixing on Year 5 !! So its your loss if rates spike higher or their spread widens. Basically, they have just bought a free option from you ! and at a hefty discount too ! Because that spread is not going to tighten, safest bank in the world or Not !
Actually UOB is a better bet with 80% financing available, a much better deal than any Singapore property out there ! And its a sub debt too which makes it a tier safer. Plus it doesn’t rip that free option out of you on Year 5.
Here is where we are in SGD Perps /Sub Debt world now for issues done this year.
No big deal. All the rated ones are nicely financed giving us way better than dividend yields and no margin calls yet. Notice that the credit spreads have all widened or are unchanged except for Mapletree Log ?
I admit I am harsh.
I have traded this stuff before for years. Went in to buy the UOB for myself actually until they started cutting the coupon which many hapless investors will not realise amounts to 75 cts on the bond price. So they are buying at 100.75 instead of 100 because of the coupon difference.
The Olam yesterday was a good buy at 6% to make a decent 25 bp profit potentially on the bond price but not at 5.8% which makes 5 bp potentially.
All is good in our happy Perp World at the moment and as long as margin calls are held at bay. Please be reminded that trading books have little limits to buy too many perps at a time because they do deduct an equivalent amount off bank capital. And just looking at the all the issues this year, capital returns have been poor and I am not even going to embark on the issue of CREDIT SPREADS.
Hold your breaths, folks. Swimming under water will be something we learn to live with.