New Issues : OUE (Not IOU) 7YNC4 and DYNASTY Reits Will Rule or Rue ?
To laugh or to cry ?
The holders of the hugely successful OUE 5Y paper issued in February this year would have been slightly alarmed about their valuations with this new 7Y NC 4Y issue.
Afterall, the OUESP 02/2017 was last trading at 3.83% and a premium price of 104.25.
Well, it has been lapped up and the old bond still standing. SGD 3.5 billion subscribed for a SGD 200 million issue is a bit of an overkill. Then again 42% went to private banks, which is no wonder.
The bond is a 7Y paper given the premium call schedules and the coupon rightly justifies the strip of 3 call options sold to the issuer.
Call Schedule
Year 4 102.125
Year 5 101.063
Year 6 100.531
The 7Y paper is currently bidded at 100.85 now, which makes a call on Year 6 look likely.
Now if we compare this 7Y paper with the 5Y OUE issued in Feb at 4.95%. Then, 5Y interest rates was about 1.25% which makes the credit spread about 370 bp, current yield of 3.85% is about 290 bp. At 4.25%, the new 7Y bond is only 295 bp over 7Y interest rates today (7Y rates 1.30%).
Ask yourself, how does it compare ? I will not go into the additional compensation(in the form of coupon) due to the buyer for the strip of options they have “technically” sold to the issuer in buying the paper.
Second consideration. We have a good company that is raising money recently and a headlines describing its bid for F&N’s hospitality and serviced unit at $1.4 billion. That is more than half its market cap. That should read MORE BONDS TO BE ISSUED to people out there.
Case closed.
DYNASTY REITS
I will not comment much on this as it is obviously extensively covered by all the equity houses and I am betting, it will be a success as well.
What interested me is that it will be the first dual currency Reit in Singapore and the 2nd dual currency issue in the world vs the CNH, which makes it effectively a CN-S (for Singapore).
I have not had time to ask anyone about the mechanics of how it will work. Both CN-S and SGD will give the same yield ? Then lower SGD interest rates make the SGD issue a better buy relatively to the CN-S one ?
Will need to clarify.
The season of giving indeed came earlier and earlier. Singaporeans are becoming more generous, with the government leading the way with their 100mio give out to NSmen. Haha. Basking in the “festivity”, my brain is not working too well so hard fact [truth] is not for today.
Just an observation out in the market place. The analysts call it the F&N effect. Yeo Hiap Seng (YHS SP), Khong Guan (KGF SP), Auric Pacific (AP SP) surged on speculations of these companies being buyout target, moving an amazing 164%, 69% and 39% respectively. These are F&B counters.
On the other side of the food chain, we have OUE (backed by Lippo) bidding for F&N and my simple guess is for its property division. Will this be the first of many others eyeing F&N’s real estate arm? I guess not. Fear of losing out to others is the THEME. Afterall, F&N is a brandname, valued by many.
Like a deer/goat being surrounded by hungry lions, that poor creature is likely to be the food for the strong (in this case, F&N being the food and OUE being the lion.) But I can tell you with certainty that sometimes the preys escape. What’s left are injured lions due to competition among own kind.
As for OUE and its fund raising activities, I hope you know what you are doing, given how the property landscape is changing. A staggering 2.1bio of debt and negative EBITDA for FY 2010 and 2011, good luck.
If stupidboy can think “smartly”, so can you.
Did not notice the EBITDA part but I notice their leverage steadily rising. War chest for acquisition of Fraser Centrepoint ?
Now that is alarming despite the fact that they were a good company in the past. Perhaps it is all accounting ? I am sure their “assets” have been marked up well to the current psf levels.
Now that FNN is being sold piecemeal, I wonder what will happen to their outstanding bonds. Better check the Info Memos for provisions in case of a takeover.
From Bloomberg.
ARA Suspends Dynasty Reit IPO on ‘Worsening’ Market Conditions
By Joyce Koh
Oct. 24 (Bloomberg) — ARA Asset Management, the manager of
property trusts backed by billionaire Li Ka-shing, said it is
suspending the initial public offering of Dynasty REIT.
• The company said in a statement to the stock exchange today that weak global markets continued to impede overall demand, which would likely impair aftermarket performance.
Comment : I feel sorry for Singapore after the world’s second dual currency CNH IPO is shelved. Perhaps the market is not ready or perhaps Singapore hasn’t promised enough currency appreciation for genuine buyers to come in for a free lunch.
No sacarsm intended just pure resignation.