New Issues : Keppel Land 12Y and Olam 10Y 6% Reopening
A short one.
Keppel Land 12Y New Issue
Keppel Land did a SGD 200 million 10Y issue in May this year at 3.8%. 10Y interest rates were 1.95% then. It’s price rose to 100.50 or thereabouts till the new issue was announced today.
Now the old Keppel Land 10Y 3.8% 06/2022 is under 100 and 10Y interest rates are 1.78%.
The best part is that the new Keppel Land 12Y is only giving a coupon of 3.90% and 12Y interest rates are …….. 2%.
Do your own math.
Olam Reopening
The old Olam 10Y 6% 10/2022 came out just 2 weeks ago which made the 7Y Olam 5.8% 07/2019 look good (now trading at about 5.43%).
The 6% coupon was a teaser and was well received despite an initial coupon of 6.25%. Now they have issued SGD 1.275 billion in SGD alone this year.
But if you ask me which is the best Olam paper to own. I would say the Olam USD 5Y 5.75% 09/2017. The paper would give you about SGD 5.38% if you swapped it from the USD for just 5Y.
Then again, Olam has another SGD 623 million worth of debt maturing next year. I am sure we will be seeing them around.
But the Keppel bond is higher by 10bps and I get it for 12 years! Buy! For the misinformed, I am being cynical.
If I’m a corporate CFO, I would be issuing all the bonds that the market is willing to absorbed.
Go figure.
We cannot make the buyers of Keppel Land feel cheated.
They could prove us wrong in the long term because they won’t hedge and if we look at it, 3.9% vs o/n rate at 0.1%, that gives you 3.8%/12, so roughly 4.5% for 1 year.
Folks do not consider opportunity cost in a bull market because everything makes money.
My sentiments exactly. But this is not how things work right? Investor demands, market delivers. IPO was the craze just not so long ago, now its the bond issuance madness. All this said, the party will go on for some time more.
Its a bond bull market alright.
If you add leverage, the bond purchases looks even more attractive. Let’s see, its somewhat “capital protected” since bonds have a higher claim to assets. Everyone thinks rates will stay low (yes, the man on the street is a rate/fixed income strategist now. cheers to that). Hmm, seems like a good deal? Borrow short, Lend long (when you buy bonds, you are lending to the issuer). Seems like the holy grail of creating money from thin air.
Folks following this blog, please understand that there is no such thing as a risk-free return.
Hi Tradehaven,
Thank you very much for your insights in the bond market. Its helpful.
Everyone’s been rather negative about the bond market and how its
a bubble. Is there any way to invest in this bond effectively ?
Does buying shorter term, higher yielding bonds make sense ?
Hi Bondy,
There is a reason for higher yielding short date papers if you do not do homework. Means no one is buying.
Greece actually made good returns of >100%, if you bought in Jun/Jul, from 0.15 cts to 0.33 cts.
Keppel land and Olam do not make’th the market out there, and certainly not China.
Trade haven,
I really like your views on the current bond market. Your perspective is very neutral and definitely has a funny side too…
I’m curious to understand on your negative outlook on China. It would be good to share our thoughts as I’m spending over half of my time over there so I maybe bias…..
Hi Barnes, welcome to the blog. I think almost everyone has a different view on China and views by default are bias. =)
China is a tough nut to crack, why? The official numbers cannot be trusted. However, a slowdown is definitely on hand. Bear in mind the following:
1) Over 40% of the people are still living in the countryside with barely the necessary essentials. Yet, companies are facing labour shortages as well. =)
2) China has not invested in its infrastructure from the 1800s to 1990.
3) China is losing its status as the world’s exporter. This is a not a bad thing.
My view? China is going through a consolidation phase. No crash but no double digit growth either.
Its years of easy growth is over. I would like to as least think that the government is aware of these and is trying to steer towards domestic consumption, higher productivity etc. This takes time. You read a lot of reports about over investment in infrastructure, but how true is that? China is simply playing catch up. Try moving 1.4 billion people around the country. I think they need more railway lines, more highways etc. They are not even close to overcapacity.
I do think that the shadow banking network and corruption pose a huge risk. Fingers crossed on no blow ups. And of course the diaoyu dao movement does not get out of hand.
Hey Barnes
I just saw this.
This is great now that we have someone with first hand insight into the place.
Please feel free to correct our views and share your thoughts.
Nothing really against China except that it is one big ass plutonomy waiting to explode in the next 30 years. Political analysts have been talking about it since early 2000’s except that they feel ME will go first which is happening now.
Thanks for your support. Keep us updated !
Hi tradehaven,
Your postings and insights are really useful, totally enjoyed reading it. I am a bit puzzled about one matter. The reopening of Olam or what they so called retap will mean more Olam 6% ten year maturity bonds is added to the market. Does this dilution effect usually significantly push down the price of that bond? Wondering what is the price just before it announced the retap and what is the price after that 🙂
Hi BondNoob
Olam reopened at 100.00 when the same issue was trading up to 101 the week before. So the price would be pushed down.
Could be temporary, especially if the market sees value in the paper and buys it up.
Will have to wait and see.
Rgds.
Hi tradehaven, I totally enjoyed reading your blog. I have a question that puzzled me. Normally does reopening or retap results in that particular bond price to fall? I remember glp has a retap last time but not sure what happened , wonder what. will happen to olam
Hi Wilson
Retap = supply. Depends on whether its is demand or supply driven.
Sometimes a pocket of demand arises from a particular client who is willing to take a sizeable chunk. In those cases, they are willing to pay more for the bond ie. retap at higher price.
GLP re opened their issue in Jan this year at a discount to the prevailing market price then, at 100.50 vs 101.50-102.00. Same for Olam 10Y which was issued at 100.00 last week vs secondary levels of as high as 101.00.
GLP perp rallied subsequently because of its credit quality improved and there are no immediate plans to tap the market.
Olam has substantial maturities next year of USD 624 million.
Notwithstanding that Olam is a senior paper vs GLP which is a perp, their credit spreads (GLP at about 3.5% for 2017 call vs Olam at 4.1% for 10Y) still make GLP look better.
Hope it helps.
Hi Tradehaven
Thank you so much for your enlightenment. I am much clearer now. I have a few other matters which need your kind advise.
a) I am sorry I am not too well connected with the financial or bond market. Is maturities of USD 624 million considered quite alright or normal for a company or is it a very large value compared to Olam’s assets/cashflow? I have no idea where I can get some information on the cashflow or assets of Olam or GLP or what kind of maturities to asset ratio is considered sound. Also wonders if S&P or fitch gave Olam 6% any ratings.
b) I understand that when interest rates goes up, bond prices usually goes down. Now interest is near zero. Say, if interest were to go up to, say, 2-3%, how big an impact is expected to have on the bond prices? Say a bond which is trading around 103 like GLP or 100 for Olam 6%. I was wondering if there is any where with charts which shows historically how the bond prices change when interest goes up.
c) Are there any sources where I can get the indicative current bond prices other than asking from reminsers? It would be much easier if I can assess it myself rather have to trouble the reminser every time I want a price quote.
d) Interest rates is real low now and inflation running high. I heard the government wanted to launch some inflation linked bond soon. I came across it in the various papers in early October again. But just wondering if you have any idea roughly when will it be? Because it seems to be so near yet so far, just wondering if its going to be something in matter of weeks, months or more. As it is backed by MAS, I have the impression it will be almost zero risk.
Thank you so so much for sharing your experience and profound knowledge in this area with everyone again. I have gained much knowledge and insight from reading the blog.
Hi Wilson
You will not believe how many people like you are out there and they are desperate for information and some form of transparency too.
Unfortunately, I was on the other side of the fence, keeping the masses from knowing too much because that would erode profit margins ? Not an admission.
a. Olam does not have a rating because 1. you have to pay for a rating 2. if it is not a good rating, might as well not be rated and sell on the idea of familiarity. (big eg. Capitaland got an unsolicited BBB years back and they rescinded it)
b. Naturally their prices would go down too if interest rates went up but sometimes, if their credit quality improves, the prices would not change as much. Similarly, if interest rates went up and the company is affected, there is a chance that the price would collapse more. Olam is 10Y and so the price would be harder hit if rates went up whereas, GLP is considered a 5Y paper. But note interest rates in the 5Y and 10Y do not change in unison.
c. We are working on something to help you.
d. Inside information tells me that no inflation linker will be announced for Singapore for some time yet (1 year ?). Do not quote me. I am aware that the HongKong and Italian governments have launched inflation linkers for retail but I suspect our government is too prudent to hand out a free lunch like that for the public. Better you trade all your USD for SGD dollars and that would appreciate enough to make you a gain.
Thanks for your support.
Hi Tradehaven
Thank you so much for sharing your insightful thoughts and wisdom. Will certainly take note of what you mentioned. I look forward to your postings particularly on bonds, new bond issues and other areas too 🙂
There’s a few more issues that I have been quite puzzled all these while regarding OTC bonds.
a) When new issues are launched, at times the subscription rate is very high and overwhelming. How does a brokage firm allocate the bonds to the clients? Does it work on a first come first serve basis or there is some form of balloting involved like IPO shares? Is there anything that one can do to increase his chance of getting an allocation if he is particularly keen in it?
b) I believe many brokage firms, banks etc do help clients buy and sell OTC bonds. Just wondering if you have any idea which channel takes the lowest commision or admin fees or is the best choice due to other reasons.
c) I have always been a bit puzzled on this matter – If a client sell a slot of OTC bond in brokage firm A, does the buyer come from brokage firm A as well? Or the buyer could be from brokage firm B and there is some “centralised bond desk” that links all these together? If the client at the other end has to be from the same brokage firm, I was wondering which brokage firm/ banks has the most number of clients for OTC bonds. Because, I supposed if a brokage firm/bank has a huge pool of clients, there will be more potential buyers/sellers and hence the spread will be less and able to sell/buy at a better price?
d) I think I come across in BT that the intial launch of Olam 6% is $400 m and the subscription is $1.5b, if I didnt read wrongly. If I am not wrong the retap they launched another $100m. Mind I ask if you have any idea what is the subscription rate for the $100m tranche? Or its not even fully subscibed? I was searching through everywhere including the Olam company website but unfortuntately I dont seem to have any indication on it.
Thank you so much for your enlightment once again.
Haha
Its baiting people right ? Alot of buyers means good paper. That is why a high coupon to draw in the crowds then slashing the coupon later. My opinion only and could be unfounded.
You can read more at http://www.bondhaven.wordpress.com
The subscription information and market prices etc are all proprietary information which you cannot even subscribe for, unlike the exchanges where you can pay for live information. That is the beauty of OTC.
Hi Tradehaven
Thanks for your advices and information, I will look up the suggested site in detail too, it looks very informative and systematic. Thanks again!
A few keys events that all of you is probably aware taking place in China :
1) 十八人民大会 on the 8 Nov
2) Official takeover by new President and Premeir in March 2013
Until then, the china government will do all they can to keep status quo especially since Spring Festival is in Feb. I can say that the restaurants and hotels are still packed in most of the tier 1 and 2 cities and with the 2011 MasterPlan focusing on domestic consumption, the spending will continue.
There is also a good bet that the china government will spend more $$ on defense budget as tension with Japan continued.
I would say for short term horizon, you can try looking at china A index or even some BlueChip china stocks as they are already below the 2009 crisis low.
Just my humble opinion though…