New Issue Review : Guocoland 7Y SGD 4.5%

ALERT : Below is the email I received from my banker and the next one was sent to me by my fund manager friend.

NOTICE THE DIFFERENCE ?

NEW ISSUE: GUOCOLAND SGD 7Y – INITIAL GUIDANCE 4.5% AREA
ISSUER:  GLL IHT Pte Ltd
GUARANTOR:  GuocoLand Limited
STATUS:  Fixed Rate, Senior Unsecured
FORMAT:  Regulation S Bearer
ISSUE SIZE:  S$100mm off its S$1.5bn Multicurrency MTN Programme
(with option to upsize)
TENOR:  7 Years Bullet
INITIAL GUIDANCE: 4.5% area
DAY COUNT: ACT/365, Modified Following
DETAILS: S$250k by S$250k / Singapore Law / CDP / Unlisted
SELLING RESTRICTIONS:   Under Section 274 and 275 of the Singapore SFA

$$$ NEW ISSUE: GUOCOLAND SGD 7Y – INITIAL GUIDANCE 4.5% AREA $$$

ISSUER:                 GLL IHT Pte Ltd
GUARANTOR:              GuocoLand Limited
STATUS:                 Fixed Rate, Senior Unsecured
FORMAT:                 Regulation S Bearer
ISSUE SIZE:             S$100mm off its S$3bn Multicurrency MTN Programme                  (with option to upsize)
TENOR:                  7 Years Bullet
INITIAL GUIDANCE:       4.5% area
DAY COUNT:              ACT/365, Modified Following
DETAILS:                S$250k by S$250k / Singapore Law / CDP / Unlisted
SELLING RESTRICTIONS:   Under Section 274 and 275 of the Singapore SFA

Market Cap : SGD 2.72 bio therabouts.

Current Outstanding Bonds : SGD 1.43 bio.

My first question, if not yours ?

Why keep issuing and borrowing ? This company is not really growing even if they are building the tallest building in Singapore above Tanjong Pagar MRT station right now. The only thing that appears growing on their income statement at a glance, would be their interest expense (up 60% yoy) which is not too unmanageable at 168 mio, as compared to Raffles Education where interest payments take up >90% of revenue.

Answer : Cheap funding and since it is 65% owned by Guocogroup, better borrow than risk the share price.

Their debts (incl loans) due in a table.

 mio  SGD
2013            50
2014          305
2015       1,194
2016          333
2017       2,069

Headlines

Guocoland (GUOL SP): 3Q revenue S$92.4m vs S$104.5m yr ago

Risks

Parent going private. “Dec. 13 (Bloomberg) — Malaysian billionaire Quek Leng
Chan’s HK$8.25 billion ($1.1 billion) offer to take Guoco Group Ltd. private.”

This means even less transparency and heightened risk of increased leverage for the subsidiary.

Nonetheless, buyers rejoice. You will be making history by buying this bond.

This will be the longest tenor they have tried to issue and so this will be the lowest coupon every paid for 7 years.

Yet it is no reason not to buy if you have to buy something.

HPL just did a 7Y at 3.9% (price going 101/101.50 now), although Guocoland is twice as leveraged as HPL. Thus, 4.5% is decent premium to pay for the increased leverage and the risk of parentage change.

But a 3 bio MTN programme, means they can borrow another 1.5 bio more if they like.

VERDICT : Not compelling.

PS : By the way, this is expected to be an easy private bank sell. They are paying just as much as Courts did to bankers who close a deal.

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