SGD Bonds Switch Ideas – Sembcorp vs Singpost, Olam vs NOL

Courtesy of a very generous contributor and market price maker. Some switch ideas for the SGD corporate bonds in your portfolio.

Sembcorp Perpetual Unrated 5% callable 08/2018 at yield to call 4.06% price 103.71
refix at 10Y rate + 3.187%

Singpost Perpetual rated A- 4.25% callable 03/2022 at yield to call 3.99% price 101.72
refix at 10Y rate + 3.692%

Singpost is higher rated but there is a 4 year difference in call dates and a very high probability of call.

Senior Comparables
Singpost 3.5% 03/2020 is 104.28/104.85 ( 2.71/2.61%)
Sembcorp 3.7325% 04/2020 is 104.80/105.30 (2.85/2.76%)

OLAM 5.8% 07/19 yield 4.86% price 104.29

NOL 4.4% 11/19 yield 4.22% price 100.88

Current Temasek ownership
NOL 67%
Olam 24.57%

Looking at Temasek’s portfolio of investments for energy and resources, Olam looks like the crowning glory for this segment given the attractive valuations over which the offer was placed. If the offer to buy all the shares of Olam goes through there is a possibility the company will be taken private as listing requirements mandate the stock’s free float to be above a minimum of 10%. This would enable the management to privately restructure the company’s much publicized debt burden amid its inherently volatile business model.

Switching the lens to NOL, the company has fallen short of expectations (loss making YoY since 2011) but has structural importance to Singapore’s economy being its first and only national shipping line. In spite of this, 42 bps of discount seems too generous especially if the Olam takeover goes through.