SGD NEW BOND ISSUE : Lippo Malls 3 Year at 4.50%

NOTE : PRICE GUIDE UPDATED !

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Barely a month has passed since the Trikomsel saga. Is the SGD bond market ready for a new issue from an Indonesian credit? Here are the details of the deal:

ISSUER: LMIRT Capital Pte. Ltd.
GUARANTOR: HSBC Institutional Trust Services (Singapore) Limited (in its capacity as trustee of Lippo Malls Indonesia
Retail Trust (“LMIR Trust”))
LMIR Trust RATING: Baa3 by Moody’s
ISSUE RATING: Unrated
FORMAT: Reg S, S274 & 275 of Singapore SFA, issuance off S$1 billion Guaranteed Euro Medium Term Securities
Programme, with latest offering circular dated 8 September 2015 (the “Programme”)
ISSUE SIZE: SGD Benchmark
TENOR: 3-Yr
INITIAL PRICE GUIDANCE: 4.50% area
STATUS Senior, unsubordinated and unsecured
USE OF PROCEEDS: As per the Programme
PAYMENT: Semi-annual, Actual / 365 (fixed)
DETAILS: Bearer / SGD250K / English Law / CDP
LISTING: SGX-ST
JOINT BOOKRUNNERS: BNP PARIBAS, OCBC Bank and Standard Chartered Bank
B&D: Standard Chartered Bank
TIMING: As early as today

Optically, 4.5% does look enticing. After all, to get yields north of that, you would probably have to venture into the oil & gas space, which I think is still off-limits to most SGD bond investors. Does it offer value relative to the secondary issues? Here are a couple of comps:

LMRTSP 4.1 06/22/20 4.58% mid
LMRTSP 4.48 28/11/17 4.48% mid

Now this puts the 4.5% into perspective. The yields from 2-5 years look pretty flat. In fact in credit spread terms, the curve is flat to slightly inverted. Seems like it makes sense to buy their shorter tenor bonds, provided you can find them. Looking at it from another angle, LMIRT REIT is currently trading at about 10% (indicated) dividend yield after the brutal sell off this year. Does that offer a better risk-adjusted way to gain exposure to the credit?

How do their leverage numbers look? Net Debt/EBITDA has been steadily increasing from 0.61 to 4.33 from 2011-2014 while interest coverage (EBITDA/Interest Expense) has declined from 9.03 to 3.50 over the same period. In terms of the debt maturity profile, they have S$275mm of bonds coming due in 2016 and 2017. To put that into context, the company’s cash balance as of 30 Sep 2015 was S$159mm.

The timing of the issue does appear challenging in the aftermath of the Paris attacks and the ensuing broad sell-off in equity and credit markets this morning. But then again, the dearth of new issues in the market this year should provide some technical bids to the market.