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.
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.
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.