SGD New Issue Review : SEMBCORP SGD 7Y & 12Y

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NEW ISSUE: SEMBCORP SGD 7Y

– New Sembcorp SGD 7yrs announced. Deal is anchored
– Initial price guidance: 3% area
– Issue size: SGD 100MM (capped)
– Timing: As early as today’s business

Comps:
SEMBCORP 3.7325% 04/2020 at 2.72%
JURONG SHIPYARD 2.95% 09/2021 at 2.95%

SEMBCORP INDUSTRIES SGD 12YR

– New Sembcorp Industries SGD 12YR announced at initial guidance of 3.7% area
– Deal is anchored by strong institutional/agency IOIs
– Issue size: SGD150million (capped)
– Today’s Business

COMPS
SEMBCORP 3.7325% 04/09/20   105.45, 2.64%
SEMBCORP 3.64% 05/27/24     102.4, 3.34%
SEMBCORP 5% 08/29/49 (PERP) 103.75, 3.91% (YTC)
JURONG SHIPYARD 3.85% 09/2029 100.00, 3.85%

We last saw Sembcorp last November with a 10.5 year issue. Since then, we have seen Jurong Shipyard come out in September to tap the market for SGD 600 mio in 7 years and 15 years.

Now the mothership is coming out for 7  & 12 year issues at a higher coupon indications than Jurong Shipyard.

Because this is good stuff and definitely not a retail bond. There is no PB rebate for this one.

Anyhow, 7 year interest rates are at 2.09% today and around 2.11% when Jurong Shipyard was launched.

This gives us only about 0.91% credit premium, a trifle thin considering that 7 year interest rates shot up to 2.35% on 19 September (2 weeks after Jurong Shipyard was launched).

Jurong Shipyard 7Y paper never really rallied past 100.10 and fell to a low of around 99.80, holding the 100 level as we speak. And it is no use asking your private banker for a bid to test them, they will pay 100.50 because they know you do not have the paper.

Back to Sembcorp Industries.

“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.” https://tradehaven.net/market/16107/

Stock price is at a 2.5 year low vs the highs we are seeing in the STI.

SEMBCORP INDUSTRIES SHARE PRICE

SEMBCORP INDUSTRIES SHARE PRICE

 

This is due to the drag in Sembcorp Marine that is in the most pessimistic industry we can think of right now – O&G. http://www.businessweek.com/news/2014-10-12/bears-crowd-to-sembcorp-after-stock-s-18-percent-drop-in-value

Dividend Yield at 1.08% last which is not too hot.

So Sembcorp Industries is moving to greener pastures – REAL ESTATE ?

Yes. The recent results show a 453% increase in operating profits from their urban development business.

sembcorp operating profitsIn conclusion, I think that only the stock markets have been harsh to this company. Bond investors still love them for their Temasek association and GLC status. It shows in the price – Jurong Shipyard 100 vs Swiber at ??? (try to hit that bid and see what happens).

I believe that the 7 year coupon will come lower than Jurong Shipyard (which will prove my point) given the small issue size of $ 100 mio (vs Jurong Shipyard 7Y SGD 275 mio) and we will probably not hear about this bond in the secondary markets for a long time (will be locked up with all your insurance monies).

Good luck !