SGD NEW ISSUE REVIEW : JURONG SHIPYARD 7Y AND 15Y

JURONG SHIPYARD PTE LTD(GUAR BY SEMBCORP MARINE LTD) SGD 7 & 15 Y

Issuer: Jurong Shipyard Pte Ltd
Guarantor:  Sembcorp Marine Ltd
Status:  Direct, unconditional, unsubordinated and unsecured Notes
Rating: Unrated
Format:  Reg S, S274 & 275 of Singapore SFA, issued off  the SGD2 billion Multicurrency Multi-Issuer  Debt Issuance Programme
Tenure:  7 Years & 15 Years
Issue Size:   Benchmark
Initial Pricing Guidance:   7 Years: Low 3% & 15 Years: 4% area
Payment: Semi-annual, actual/365 (fixed)
Redemption for Taxation Reasons: Yes, in accordance with the Programme
Details:   SGD250K/MTN Programme/Singapore Law/CDP
Listing:   SGX-ST

– New SGD 7 and 15 yrs announced for Jurong Shipyard Pte Ltd, guaranteed by Sembcorp Marine Ltd. Deal is strongly anchored.
– Initial price guidance: 7 years at low 3% & 15 Years at 4% area
– Issue size: Benchmark
– Timing: This week’s business, as early as today

Comps:
Sembcorp Financial Services 3.7325% 04/2020  105.65, 2.64%
Sembcorp Financial Services 3.64% 05/2024 102.00, 3.40%
Sembcorp Financial Services 4.25% 08/2025 indic 3.75%
Keppel Corp 3.1% 10/ 2020  102.25, 2.70%
Keppel Corp 3.8% 04/2027 101.95, 3.74%
Sembcorp Industries Ltd 5% Perp callable 08/2018 104.42/104.95 3.78/3.64%

The prodigal son returns. Scandal ridden to become the golden child of Singapore bond markets again.

Remember the headlines ? pertaining to Jurong Shipyard (today’s issuer), of course.

”     Oct. 23 2007 (Bloomberg) — SembCorp Marine Ltd., the world’s second-largest maker of oil rigs, fell the most in five years in Singapore after firing a former chief financial officer for foreign-exchange trades that may cost the company $248 million.”
”           Feb. 14 2008 (Bloomberg) — SembCorp Marine Ltd., the world’ssecond-largest maker of oil rigs, will book a $258.7 million charge in its fourth-quarter earnings because of foreign-exchange losses at a unit.”

unit = Jurong Shipyard

There was a time when Sembcorp Marine was racking up huge debts on its seriously ambitious Integrated shipyard project and now we have fixed assets about 4 times 2010 in their books.

Chart : Fixed assets vs Revenue at Sembcorp Marine

I just felt obliged to point it out even if it does not make any material impact on our analysis and while we are on that, do note that their liabilities have ratcheted higher too.

Chart : Sembcorp Marine Total Liabilities and Cash Position

Keppel Corp (mkt cap 19.97 bio) and Sembcorp Industries (mkt cap 9.24 bio), twin horses in the Temasek stable with ownership standing at 20.99% and 49.46% respectively.

Sembcorp Industries in turn owns 60.57% of Sembcorp Marine (mkt cap 8.29 bio), widely seen as their cashcow and glamour business (other than their other business of waste management) that contributes towards half of their total profits.

In short, Sembcorp Marine nicely complements the Sembcorp Industries portfolio as the cyclical and volatile component vs the humdrum of the business of garbage.

I did say the Sembcorp Industries perp was a buy last year, writing at length about it.

https://tradehaven.net/market/sgd-new-issue-alert-semb-corp-industries-perpetual-bond/

https://tradehaven.net/market/lessons-from-the-sgd-sembcorp-perpetual-bond/

I think today’s issues would go better.

7y interest rate 2.1% and 15y interest rate 2.77%.
7y and 15y government bonds are going at 1.9% and 2.67% respectively.

At 3%, it would be less the 1% over the 7 year interest rate.

At 4%, it would be less than 1.3% over the 15 year interest rate.

As a gauge Temasek is going at about 0.70% for 10 years and Sembcorp Industries launched a 10.5 year bond late Nov 2013 at a premium of 1 %.

Quite expensive, don’t you think ? Then again, they have come a long way since last year and latching on the mindset of “rescues” like Olam’s case (and Stats Chippac too), we may as well be buying Temasek here … or even, the Singapore government ? Make no mistake, this is what some professionals think as well.

Who needs traders and analysts anymore ?

As for me, the 7 year and 15 year tenors are not my favourite at the moment even though 4% is a good number for retirement planning.

Note that Sembcorp Marine dividend yield is 2.77%.  Current share price of $3.97 is close to its 12 month low of $3.91.

Good luck.