SGD New Issue Alert : Semb Corp Industries Perpetual Bond

To make those who had rushed into Ezion yesterday feel slightly sore about their 4.6%.


Issuer: Sembcorp Industries Limited (“SembCorp”)
Issue:  SGD Perpetual Subordinated Capital Securities
Ratings: Unrated
Format:  Regulation S (registered) only and S274/275 of SFA
Price Guidance: Low 5% area
Issue Size: TBD
Tenor: Perpetual NC5
Ranking: Subordinated
Call Option: [●] Aug 2018 & at every distribution date thereafter at par
Distribution: Fixed.
Reset in Year 10 based on prevailing SGD 10Y SOR & every 10 years thereafter

* New Subordinated PerpNC5 announced, anchored by real$ interests
* Price Guidance at low 5% area
* Structure: Subordinated PerpNC5, 100bps step up in year 10, with SOR reset in year 10 and every 10 years thereafter, Cumulative, Dividend pusher and stopper
* This week’s business, as early as today

MAPLSP 5.125% Subordinated PerpNC5 (100bps step in ’22) 5.130% YTC
GLPSP  5.500% Subordinated PerpNC5 (100bps step in ’17)  4.815% YTC

Temasek Ownership 49.48% compared to Mapletree Treasury 100% via subsidiaries.

Sembcorp Industries has a term loan of SGD 150 mio maturing this year and a SGD 200 mio bond maturing next year. They last hit the market in 2010 with a 15 year paper at 4.25%.

Whilst their balance sheet looks healthy with SGD 2 bio in cash and near cash items on hand, the number appears to be dwindling lower from a peak of SGD 3.5 bio in 2010. This is largely due to Sembcorp Marine’s cash position.

Sembcorp Marine (60.55% owned) is the cash cow of the mothership accounting for about half of total revenues (with utilities accounting for the other half).  The company’s earnings underperformed in 2Q13 despite having a record order book in place. As such, Sembcorp Industries 2Q net profit was 13.3% lower.

They have always been looked at as the little brother of Keppel which is also unrated but should pull off an A or A-. Thus Sembcorp should be a mid BBB to BBB-.

It puzzles me that Sembcorp would choose the perp route though. I would feel that they would prefer a long dated senior which is understandably hard to market in the “taper” climate we are in.

So we are lucky to be rewarded with a perp instead, something that would appeal to the retail as well and something that the bank is really smart to announce one day after they pushed Ezion out of the way.
Timed a little too obviously well.

At 5.25%, Sembcorp would be a medium to long term buy and not to trade. Afterall, it will be a 10 year run. And DO YOU KNOW WHERE NOL IS TRADING AT ?

NOL 4.4% 06/2021 is trading at 4.75-4.80% !