2012 – A Golden Year For SGD Bonds. What’s Next ?

2012 was a golden year for SGD corporate bonds, setting many records that have not been broken since.

1. Total corporate bonds issued SGD 31 bio.
2. The largest ever corporate issue – Genting 5.125% OTC perpetual SDG 1.8 bio.
3. Over SGD 5 bio in perpetuals issued in the year.
4. Big turn in trend towards retail investor marketing.

What are the best performing bonds of 2012 ?

I decided to do it my old way – comparing how much they would save at the current price the market is valuing their bonds. What they save is what the buyer would have gained (besides the coupon).

I know it is not the typical way that a retail investor would look at their investments but it is easier for me to compare across a large number of bonds, all bearing different coupons.

And the winner of 2012 is…..

1. Central China Real Estate 10.75% 04/2016 !
Last price 108.68 5.68%

This bond was issued at a premium of 9.8% over the 4 year interest rates then and is now trading at a premium of 5.1%, gaining 4.7%.

2. Shui On Development 8% 01/2015
Last price 102.69 3.48%

Original premium 7.25%
Current premium 3.17%

3. Cambridge Reit 4.75% 03/2015
Last price 102.43 1.41%

Original premium 4%
Current premium 1.09%

4. Ezion 7.8% perpetual
Last price 103.50  4.82% to call date 09/2015

Original premium 7.2%
Current premium 4.42%

5. Olam 7% perpetual
Last price 105.90 4.64% to call date 03/2017

Original premium 5.88%
Current premium 3.74%

It is natural, I suppose, that the shorter maturity papers have done better, given that short end interest rates are still going at the near zero mark which is what the 2015 papers are benchmarked against.

Then we have the Dogs of 2012 and there are not too many of them whose credit has deteriorated since, I would say 10-15% of the bonds are worse off.

1. Swiber 9.75% perpetual
Last price 96.00 13.2% to call date 09/2015

Original premium 9.09%
Current premium 12.8%

2. HDB 2.185% 04/2022
Last price 94.52 2.94%

Original premium 0.07%
Current premium 0.65%

3. HDB 1.165% 04/2017
Last price 99.28 1.42%

Original premium -0.02%
Current premium 0.43%

4. Keppel Corp 4% 09/2042
Last price 91.21 4.59%

Original premium 1.2%
Current premium 1.4%

And here is the list for readers if they are interested for it will be a waste to delete it (the column in blue is the original premium and the last column is the current premium – prices unverified).


We have to note that interest rates in 2012 were much lower than today with the 5 year interest rates averaging at just 1% for the entire year.

That most of the issues in 2012 are trading at a premium in 2014 is an illustration of how much credit spreads have tightened and how credit conditions have changed in 2 years. The mad grab for yield have shunted out the need for safety.

Thus, holders of Genting 5.12% perp should not complain too much, because the issue has really tightened almost 1% since its launched and if nothing had changed, the price would be much lower today.

To me, it also signals that the market dynamics have swung towards a retail based leverage playing field and bonds targeted at the retail market have gained in importance as funding costs drop and the government steps up on efforts to rein in property loans. Banks have turned to lending to high net worth individuals and the mass affluent market in financial products because the accredited investor market is less regulated than the regular mass market.

In recent weeks, we have seen a shift towards more a discerning investment trends within the middle tier credits. A preference for strong BB or BBB Chinese names have emerged, for example, over the higher yielding junk papers.

It would seem astute investors are moving into the names that would survive as credit spreads tighten to indiscernible differences between good and bad credits.

We are back to 2007 levels after a frantic rally for most of 2014. At the mid year mark, it looks like 2H14 will not be able to match 1H’s rally. And if we are expecting a pull back, perhaps it is a time for us to re-evaluate the portfolios.

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