SGD New Issue Review : Ezion 7+% Perpetual
NEW ISSUE: EZION HOLDINGS LIMITED SGD SUBORDINATED PERP-NC-4Y
Issuer: Ezion Holdings Limited
Issue: SGD Subordinated Perpetual Securities
Ratings: Unrated
Format: Registered form, Regulation S only and S274/275 of SFA, issuance off S$1.5 billion Multicurrency Debt Issuance Programme
Issue Size: TBD
Initial Price Guidance: Low 7%
Tenor: Perpetual NC4
Settlement Date: [●] 2014
Ranking: Subordinated; Senior only to Issuer’s ordinary shares
Call Option: [●] 2018 & at every distribution date thereafter at par; Redemption may be in whole or in part (on a pro-rata basis)
Distribution: Fixed. Reset in Year 4 based on prevailing SGD 4Y SOR & every 4 years thereafter
Step up: 300bps from Year 4 onwards
Distribution Payment:Act/365 days (fixed), payable semi-annually in arrear
Distribution Deferral: At issuer’s discretion. Any deferred Distributions are cumulative and on a compounding basis
Dividend Pusher: Yes, with 12 month look back period
Dividend Stopper: Yes
Other Redemption: At par under taxation reasons, accounting reasons, minimal outstanding amount and tax deductibility reasons
Details: SGD250k/ S$1.5 billion Multicurrency Debt Issuance Programme/ CDP
Listing: SGX-ST
Governing Law: Singapore law
– New Ezion Perp NC 4 announced on the back of strong reverse interests
– IPG at low 7%
– Structure: Perp NC 4, reset every yr 4, step up 300bps in yr 4 if not called, dividend pusher, dividend stopper
– Size: TBD
– PB selling concession: 50c
– Timing: This week’s business, as early as today
Comps
EZISP4.875% 06/21: 99.58, 5.00%, sor + 366
EZISP7.8% Perp NC 2015: 102.00, 5.37%, sor + 496
Share Price
Market Cap : SGD 2.35 bio
Dividends : 0.06%
Yesterday Charisma Energy set up at S$ 500 mio multicurrency debt program. Ezion is a major shareholder of Charisma (41.42%). Charisma’s shares enjoyed a sudden spike earlier this month.
Today Ezion is proposing a perpetual after their 7 year bond issue earlier in May this year, paying 4.875%.
Ezion has done well this round with their 3rd quarter financials showing strong profit growth. Selling their Australian business to AusGroup last week should give them a profit for this quarter too.
And their cash position is very healthy.
The offshore rig business should be challenging going ahead but we are not seeing any profit warnings from them yet or contracts lapsing.
Looking at the 3 most frequent O&G issuers in Singapore.
Note that Swiber’s perp is a senior perp too, just in case.
7% should be enticing enough to get investors in as the pricing is in line with Barclays coco bond which is dealing at the 7% handle and Bank of China coco at 102.00 already.
I would have a really good laugh if Ezion goes on to do a share buyback after this.
Bond Perception Question: Which will you choose? Why
This Ezion 7+% Perp OR Swiber 9.75% Perp
Swiber 9.75% Perp
Callable/Step-up in Sept 2015
Step-up: Reset Date SOR + 9.035% initial Spread + 300bps
[url]http://swiber.listedcompany.com/newsroom/20120914_231259_AK3_A7DF9FCA03AB818548257A790041B4AF.1.pdf[/url]
Disclaimer: This discussion is just for education purposes. Not meant to encourage/recommend any product. Not vested in any of the above too.
Swiber perp is a senior perp which makes a big difference during a default.
The bigger question is if you would take the Ezion perp over one of the Cocos which are paying same or higher.
Thanks for your reply TH,
I was very very very keen on the Bank Cocos, but they are either listed overseas (require custodian accounts + face some withholding taxes), or listed in foreign currencies (eg. Euro or USD). At this moment, wifey restricts me to only SGD-denominated bonds. LOL
btw, Ezion 7+ is also Senior Perp right? That’s why i compared it against Swiber 9.75%.
Ezion if definitely not senior.
It is subordinated.
Thanks for clarifying.
EZION SUBORDINATED PERP NC 4Y – BK IN EXCESS OF S$100MM
not so hot ….
hear 6.75 they wanna pull .. but i doubt they can. anything less than that is quite shag. i prefer swiber or ezra much cheaper and essentially same bucket of risk.
Junk Bond Risks Soar With Leverage at ’08 Level
http://washpost.bloomberg.com/Story?docId=1376-NEVYBE6VDKHV01-6MSNNPFK6CO1TKQJMGVGHN12JS
Not that Ezion is junk but they will nonetheless be in the “not safe haven” credit category when it goes.
NEW ISSUE: EZION SUBORDINATED PERP NC 4Y
– Book approching S$300MM
– Final Price Guidance: 7% (the number)
– Issue size: S$150MM (will not grow)
My personal experience and observations are that perpetuals used to only command AT MOST 30% leverage, no matter how good the rating was. That was as recent as 2-3 years ago.
Now it has become an issue of competitive leverage pricing amongst the various private banks, fighting to give 60-70% leverage on some perps. It is the same for the sub prime crisis – to respond to competitive pressures from other banks.
Look at the perps in this list
http://www.maybank-ke.com.sg/docs/Fixed_Income_Securities_at_188.pdf
For perps, if there is no step-up after first call date, it will ruin the aftermarket price and difficult to obtain LTV for bond financing.
Cheung Kong is one of the safest SGD perp around with lots of ready cash; and their ratings and rated bonds will be crashing like mad if they don’t redeem on first-call. However, Cheung Kong perpholders suffered like crazy because of their refusal to include to step-up.
For rated companies, if there is a step up, the perp will not be considered equity by the rating agencies. You know that right ??
THat is why only unrated and junk companies can issue perps with big step ups.
Dear TH, I am not aware of that. I have no education in these, just speaking from experience. I always thought only banks issue perps without step-up because of BASEL-III limitations.
Thanks for sharing, I didn’t know what you mentioned applied to non-banks too if they are rated.
CK Perp is the classic example of a debt issued from an ultra strong company, that tanked below 100 consistently after issued because there was no step-up.
I am not fully updated on all the latest developments as well. Only what I come across.
CK is not bad if you are resigned to a lifetime of low rates. Unfortunately if you know too much, you would be too risk adverse to buy especially when you consider the possibility of some drastic outcome from all the quantitative easings that would keep you up at nights.
Current price Ezion 7% Perp 100.45/100.75
Current price 100.40/100.65
Hi,
I chance upon your site.
I am a newbie in corporate bond.
May i know how to buy such bond?
I only dabble in stocks and SGS bonds.
Thank u .
I assume you are buying from the stock market then if you are buying SGS.
For corporate bonds, some stock brokers offer them. Otherwise most private banks would be able to help you.
Hi TH,
Thanks for your reply.
Is the minimum lot size 250K in step 10k?
Thank u
Hi Jo,
No. Increment amounts vary from 1k to 100k to 250k.
However, we can look forward to retail lot sizes from next year. http://52.77.202.71/market/bond-market-development-sgd-retail-bonds-at-last/
Hi TH,
Despite fears that fed rates will rise, I cannot help but feel the short term rates in USA, SGP etc will rise only somewhat, but the longer end of the curve will remain the same.
Eor example, even if fed rate hits 2% in a few years time and holds it there, short term 1-5yr swap rates in SGP may go up to 2% or so, but I doubt long term 10yrs will go beyond 3+%, due to low growth, i.e. Japan, German style stagnation.
similarly for high grade corporates, I don’t expect good firms to issue above 4+ % for long term bonds.
The above is just my opinion, may I know your thoughts on this.
Thanks in Advance.
Hi Creditmon,
A flat interest rate curve is what you are suggesting and that has been happening with the SGD 5y5y forward rate trading near its lows for the past 18 months.
The long end of the curve is usually the tenor to hedge for inflation risks and with Japan and Europe in a hurry to boost inflation, I am not sure if the long end will stay low when inflation expectation rises. And we have to consider the future when stimulus gets withdrawn.
Thus I am not sure if we can assume that the long end rates will stay low forever unless you are factoring in future stimulus measures.
For high grade corporates, we just had Apple issue a 8 year EUR paper at 1% but it really depends on the credit spreads and where the government bonds are trading.
My 2 cents worth.
Hi trade haven, any good bond to introduce for purchase
Cannot be seen giving financial advice but of the new issues, I think Grand China was fairly priced.