SGD NEW ISSUE REVIEW : FIRST SPONSOR GROUP LIMITED 3Y LOW 4%

FIRST SPONSOR GROUP LIMITED  SGD 3Y

–  First Sponsor Group Ltd announced new 3y SGD, driven by reverse enquiries post roadshow
–  Initial price guidance: low 4%
–  Timing: As early as today

Comps:
CDL 2.45% 2018 – 100.25, 2.35%
CDREIT 2.5% 2018 – 99.53, 2.66%
GUOCOLAND 3.6% 2017 – 100.15, 3.53%

Credit Highlights:
–    First Sponsor Group is supported by its established controlling shareholders, the Hong Leong Group of companies, through its shareholding interest in Millennium & Corpthorne Hotels PLC, and Tai Tak Estates Sendirian Berhad
–    The Group focuses on three key business areas, namely, property development, property holding and property financing with operations predominantly in China. In February 2015, the Group expanded its property holding business to the Netherlands
–    Revenue for FY2014 was S$153.2 million and Profit Before Tax was S$40.5 million for the same period
–    Market capitalisation was S$749,064,985 as at 8 May 2015
–    For more information, please refer to investor presentation at:  http://infopub.sgx.com/FileOpen/FSGL%20-%20Investor%20Presentation%20Final%20-%2019%20May%2015.ashx?App=Announcement&FileID=352452

Market capitalisation is S$ 755 mio but their MTN size is S$ 1 bio, granted it is an associate company of Millenium Copthorne Hotels Plc (35.6%).

HONG LEONG GROUP STRUCTURE

fsg structure 2

Second thing that struck me is this slide.

fsg ppty financing

That is where your 4% bond is going to ? The lucrative business of 16.5-24% financing for people to borrow to buy the property ! Shadow banking through “trust loan” arrangements ! and apparently undertakes the bank guarantees to banks for the mortgages of some buyers.

My wild hunch is that it is no wonder this company has been listed separately and M&C New Zealand chose to list First Sponsor in Singapore last July to distance the entity from the main group, as if the Chinese govt will do anything to a foreign real estate company as compared to the local ones that are bellying up and running into challenges like Sunac today with their shares suspended since 15 May.

With the ownership looking nice despite the lack of guarantees from the major stakeholders, let is take a look at the 4+% pricing.

3Y rates 1.64% which means we will get 2.61% over swaps if the coupon is 4.25%.

Another China property name that boasts of good Singapore parentage would be CENCHI (27% Capitaland) whose bonds have done well in the past year, rising from low 90’s to near 100 these days.

CENCHI 6.5% USD 06/2018 (Ba3/BB-) is indicating about 6.55% yield on the offer.

CENCHI 6.5% SGD 05/2017 (Ba3/BB-) is offered at about 5.83%.

Perennial China is another Singapore listed name that has strong sponsors comprising of Mr Pua Seck Guan (CEO of PREHL), Mr Kuok Khoon Hong (Chairman and CEO of Wilmar), Wilmar International Limited and Mr Ron Sim (Founder, Chairman and CEO of OSIM).

Perennial Treasury 4.25% SGD 03/2018 is indicating 4.2% on the offer.

FSG’s main edge would be that their associate company standing in the M&C group and entice investors to the “free lunch” in their 4% coupon handle that we will not ever see in a CDL related name.

I would part by saying, it is ok if you hestitate.

Good luck !