SGD New Issue Review : Capitaland 10Y 4%

Dear Capitaland, whom we have not seen since 2012.

CAPITALAND 10Y SGD

NEW 10Y SGD ANNOUNCED
INITIAL PRICE GUIDANCE: 4% AREA
SIZE: SGD BENCHMARK
AS EARLY AS TODAY’S BUSINESS

A surely must have name for any serious bond collector.

MTN programme size S$ 5bio and they have S$ 1.13 bio outstanding in bonds, and another 5 bio in convertible issues.

CPN MATURITY SIZE AMT CCY BID OFFER
CAPITALAND 4.076 20-Sep-22 400 MIO USD 99.55 100.25 4.14% 4.04%
CAPITALAND 4.3 31-Aug-20 350 MIO SGD 106 106.5 3.20% 3.11%
CAPITALAND 3.8 30-Oct-14 80 MIO SGD 100.6 100.6 0.40% 0.32%
CAPITALAND 4.35 31-Oct-19 250 MIO SGD 106.3 106.8 3.03% 2.93%
CAPITALAND 3.5 17-Jul-17 50 MIO SGD 103.65 104.3 2.19% 1.98%

 

Market Cap : S$ 14.138 bio
Temasek ownership 39.47%
Dividend : 2.41%Financial Leverage : 2.4 times
Debt/Assets : 34.7%

This is a classic example of a well run state owned company that is proudly Singaporean and we should not be expecting miracles from them. They have done a good job lying low for the past year and cleaning up their books, reducing (yes, reduce) their liabilities as the rest borrow away. And if I may add, looking at their accounts is a dream compared to the other real estate issuers.

Closest local competitor – City Development Holdings that is beating Capitaland hands down on interest expenses (CDL $ 81.8 mio vs Capitaland $433.9 mio) and net profits.

Cash pile status S$ 5.9 bio, beats me as to why they want to borrow more.

Subsidiaries Ascott and Capitamalls, CapitaCommercial Trust have their own MTN borrowing programmes.

It all boils down to the pricing.

10Y interest rates 2.49% which gives us a 1.51% on the bond.

Their last 10Y USD issue done back in 2012 was at a premium of roughly 2.15% (and is trading at 1.62% premium now for 8 years left).

Although Capitamalls is rated A2, I have always associated Capitaland with a BBB.

Cheung Kong, which is a few times larger than Capitaland and with a sterling balance sheet, has a SGD 4 year bond that is trading at a premium of 1.24% whilst the rest Hong Kong Land, Sun Hung Kai and City Dev are between 1.1-1.4% in premium. All are in better financial stead than Capitaland on paper.

Cost of 10Y Default Protection
Hong Kong Land (A2/A)  1.46%
Sun Hung Kai (A+/A) 1.85%
Temasek Holdings (Aaa/AAA/AAA) 0.65%

Thus 1.51% is a just spread that is good enough not to pass over and my basic challenge to the skeptical retail investor is, why buy short term junk at 4-5% and roll over junk at 4-5% after it matures ?

Yes. 10 year is a high risk tenor that should be looking shaky after last night’s FOMC minutes. But hey, it is Capitaland, you know.