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%.
** SEMBCORP INDUSTRIES SGD SUBORDINATED PERPNC5 – PX GUIDANCE **
Issuer: Sembcorp Industries Limited (“SembCorp”)
Issue: SGD Perpetual Subordinated Capital Securities
Format: Regulation S (registered) only and S274/275 of SFA
Price Guidance: Low 5% area
Issue Size: TBD
Tenor: Perpetual NC5
Call Option: [●] Aug 2018 & at every distribution date thereafter at par
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
* KEY COMPS:
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% !
Do you mind explaining what is meant by Ranking: Subordinated and JR Subordinated.
Does NC5 stand for non convertibles or non cumulative.
Thanks for your guidance.
Subordinated means junior to the senior bond holders and company creditors so that is Tier 2 capital. (there are some perps that are Tier 2)
Junior subordinated probably means potential of no coupon i.e. non cumulative and no step ups etc i.e. Tier 1 capital.
NC means non callable.
Not looking good. SGD 300 mio books and all gone quiet. The issue size is 250-300 mio and now all news headlines regarding the bond issue has vanished.
FINAL COUPON 5%.
BOOKS ARD 400 MIO.
Slightly surprised at the lack of response.
Reason for poor response is apparently the lack of leverage offered.
Local bank giving 60% and another local bank in raffles place giving 55% but all the others giving 0% including the BIG Swiss and a sort of brit.
So after 10 years, these perps will pay 10Y SOR + 100 bps?
And after 20 years, the only change is the reset in the 10Y SOR rate?
i.e. New 10Y SOR rate + 100 bps?
Ok. It is a 200 mio SGD issue (small) and callable in 2018 at 100.
If not called, it will run into 10 years and have a coupon step up of an extra 1%. So my guestimate would be around 10Y interest rates + 3.23%.
The good thing compared to UOB perp is that this is CUMULATIVE and COMPOUNDING ie if they do not pay coupon, they will have to still cough it up.
Mind explaining what do you mean by lack of leverage offered?
It means that you cannot borrow money to buy the bond.
Have not heard anything about bond leverage except share financing.
Can advise if it is common to leverage on bond? Where can we leverage from. Thks!
Just saw this.
Yes, it is common although it may not need to be specific leveraging. The bond counts as part of your portfolio which can be borrowed against for other investments etc.
Your banker will advise you and it is different for different banks.