Reopening of SGD Bond Market?

Over the last week, we possibly witnessed the signs of a first default in the SGD bond market post-Lehman. Trikomsel’s proposed debt restructuring will undoubtedly send some shivers down the spines of investors in the higher yielding SGD corporate bond space. Coming on the back of the bloodbath in EM credits in recent months, this should keep the issuance window shut for the foreseeable future for the less credit-worthy names. In fact, does anyone even remember the last SGD new issue that came to the market with a >6% handle coupon?

Having said that, lest anyone think that SGD corporate bond investors can close their books for the year and begin planning for their year-end vacations, there are some signs that the primary market for “better” quality credits (or at least less dodgy) may finally be coming back to life. Beginning with the retail bond issue for Perennial China Trust which at 4.65% for 3-year risk does not seem overly demanding. With China macro risk seemingly more benign now as compared to a couple of months ago, and coupled with the bite-sized minimum tradeable size of $1k, a decent take-up rate would not be surprising.

The other deal, which would most certainly be targeted at the PB clients is Julius Baer which is doing a roadshow next week for its SGD Additional Tier 1 (AT1) Basel 3-compliant new issue. It’s interesting that JB has chosen to issue in SGD for its first non-CHF AT1 issue. It is likely linked to the fact that it is a well-established name among the PB clientele here, hence potentially giving the issuer a bit more leverage when it comes to pricing. Given that investors would be familiar (and perhaps comfortable?) with the name, it would all boil down to pricing. With the existing JB AT1 CHF Perps (callable 2020) trading around swaps +450, even if we ignore the cross currency basis swap, the new SGD AT1 could possibly see a 7+% coupon (Gulp!). Early indications are that there will be a permanent write-down feature with a 7% CET1 trigger and the issue will be rated by Moody’s. Though the 7% trigger is higher than the 5.125% trigger on the CHF issue, it is worth nothing that JB’s latest CET1 ratio is >20%, giving it a very comfortable distance-to-trigger still. Stay tuned for more updates on this deal.

While it’s still early days to call for a full-fledged restarting of the new issue machine in the SGD bond market, I think decent take-up rates and sensible pricing on these deals, coupled with a continued recovery in global risky asset markets could make for a busy end to the year.