SGD NEW ISSUE REVIEW : OUE 5Y 4%

ISSUER:    OUE Limited
STATUS:  Direct, unconditional, unsubordinated and unsecured Notes, off Issuer’s SGD3 billion Multicurrency Debt Issuance Programme
ISSUER / ISSUE RATING:      Unrated
ISSUE SIZE: Benchmark
FORMAT:  Bearer / Reg S, Sections 274/275 of Singapore SFA
INITIAL PRICE GUIDANCE:     4.00% area
TENOR:  5-Year
INTEREST PAYMENT:  Semi-annual, actual/365 (fixed)
DENOMINATION :SGD250K
GOVERNING LAW:    Singapore Law
LISTING:  SGX-ST
CLEARING:     CDP

OUE LIMITED SGD 5YR
– New 5Y SGD transaction for OUE Limited announced at initial guidance of 4.00% area.
– This is the first issuance from OUE since 2012 and is on the back of strong investor interest from a successful roadshow conducted last week.
– Issue Size: Benchmark, expect to be similar previous to OUE transactions
– Today’s Business

COMPARABLES

OUE 4 ¼% 10/30/19     102.55  3.595%
HPL 3.88% 04/08/20     100.875 3.686%

The OUEs’ out there.

The 5 year interest rate today is 1.925% which gives us a credit spread of 2.075% for this bond, its tightest issue spread by far. However, this bond is coming at a time when we just saw a spate of real estate names coming out at the 3% handle.

Last month, we had FCT at 2.9% (4Y), HPL 3.88% (5Y), Ascendas Hosp Trust 3.3%% (5Y) and CDL 3% (5Y).

Thus OUE at 4% is definitely acceptable.

I like issuers with REITs in their names. Gives me a sense of assurance that there is a taker for unwanted properties although I do not mean it in that way.

“While OUE’s office exposure should benefit from the continued rent recovery story, its hospitality portfolio is not immune to rising headwinds from sizeable hotel room completions over the next two years. With a majority of the group’s wholly owned quality assets already injected into its two listed REITs, acquisitions of undervalued properties will likely be key share price catalysts.” taken from JPM analyst report  Dec 2014.

OUE SHARE PRICE

I am not in a hurry to buy this paper because their cash appears to be running low and their inventories are growing and they have some big project commitments coming up which means more bonds to come out of that $3 bio programme of theirs.

Note that OUE bought a 22.97% stake in Gemdale Properties HK (535 HK) back in Dec last year at HK0.52 per share (trading at HK0.435 now). Gemdale bonds pay a far higher yield.

Still, I believe there will be takers for the 4% yield handle although I believe that the coupon will fix a tad lower.

Good luck.