Volatile Sing rates stall issuance
Bonds Emirates NBD’s launch of Singapore dollar note awaits calmer rates backdrop
BY KIT YIN BOEY
Sales of Singapore dollar
bonds ground to a halt this
month as large swings in local
benchmark rates forced issuers
and investors to rethink pricing
expectations.
Bankers had hoped the
strong momentum in January
issuance would continue into
February. A dozen bonds of a
combined S$2.2bn (US$1.7bn)
were sold last month, up
sharply from just three prints
of S$920m in January last year,
according to OCBC Bank’s
credit research data.
One debt originations head
said the recent moves in the
SOR levels were not favourable
and sentiment in the market
was quite tricky with the
uncertainties.
“There are a few deals in
the pipeline. Typically, we get
issuers with needs for planned
capital expenditure or asset
acquisitions funded in the first
two months of the year,” he
said. “With the choppiness in
the market, issuers are now
just monitoring the volatile
markets and waiting for the
right windows.”
EMIRATES NBD BANK held
meetings with fixed-income
investors on February 1 for
a potential senior Singapore
dollar bond. DBS Bank, Emirates
NBD Capital, HSBC and Standard
Chartered are joint lead
managers and bookrunners.
Since the roadshow,
Singapore dollar SOR rates had
oscillated wildly, but mostly
upwards, in tandem with US
Treasury yields. Sharp moves
came on January 29, when
short tenors in the SOR curve
climbed 5bp–8bp and long
tenors went up 8bp–10bp. On
January 31, rates fell 2bp–6bp
across the curve before rising a
total of 6bp–12bp over the next
two days.
Last Monday, the 10-year US
Treasury yield touched 2.89% –
the highest since January 2014
before a flight to quality amida global sell-off in risk assets
sent it tumbling to 2.72%. The
following day, the Singapore
dollar SOR rates fell at a less
frenetic pace of 2bp-6bp
across the curve, reflecting a
decoupling from the Treasury
moves.
“The SOR rates are
outperforming the US rates,
mainly because the Singapore
dollar is benchmarked against
a basket of currencies and that
has provided a buffer to the
impact from the US rates,” said
one banker.PRICE EXPECTATIONS
“The volatility is due mainly to
uncertainties over how many
rate hikes there will be in the
US, but the healthy economic
fundamentals in Singapore
remain unchanged and there is
still a lot of liquidity here. So,
there is a bit of over-selling.”
One consequence of the
swings is a widening in price
expectations between issuers
and investors. Over the mediumterm, investors are likely to
demand higher new-issue
premiums ahead of imminent
US rate rises this year. This will
mean a longer price-discovery
process, especially for newer
credits like Emirates NBD.
“Smoothening out the
volatilities, SOR rates are likely
to drift higher as the US Fed
hikes rates,” said Eugene Leow,
rates strategist at DBS for G
and Asia markets. “Broadly
speaking, Sing dollar rates
are still low as the market
is factoring in US dollar
weakness.”
Bankers say Emirates NBD is
willing to wait for a favourable
window as it is not in urgent
need of funds. Its foray into
Singapore dollars is to diversify
its funding avenues and
currencies, as it did in Australia
where it pushed through a
A$450m (US$364m) 10-year
Kangaroo bond on February 1.
Emirates NBD Bank was
formed in 2007 from a merger
of Emirates Bank and the
National Bank of Dubai. Its
predecessor, Emirates Bank,
had raised a total of S$190m in
three separate Singapore dollar
issues in 2006. GEAR pays year’s highest yield
Bonds Indonesian coal miner offers Asia’s richest returns of 2018 for US dollar debut
BY DANIEL STANTON
GOLDEN ENERGY AND RESOURCES
overcame choppy markets to
make its offshore debut last
Thursday, but the Indonesian
thermal coal producer had to
pay the highest yield in the
Asian G3 sector year to date.
It priced US$150m of five-
year non-call three senior
bonds at 98.53 with a coupon
of 9% to yield 9.375%. This was
tightened from initial price
guidance of 9.5% area.
That exceeded 9% yields seen
from Ronshine China Holdings
and China Logistics Property
Holdings, although the latter’s
issue was for a tenor of just 362
days.
The size was short of
the US$300m Moody’s had
estimated in its rating note on
January 19, but would help the
issuer establish a track record
with bond investors and build
access to capital markets.
The notes are expected to
be rated B1/B+ (Moody’s/Fitch),
in line with Singapore-listed
GEAR’s issuer rating.
Price references were Geo
Energy Resources’ 2022 bonds,
rated B2/B/B+ and quoted at
8%, and Indika Energy’s curve.
Indika, rated Ba3/B+ (Moody’s/
Fitch), had 2022s at 5.78% and
6.12%. GEAR was expected
to pay a premium over those
names due to the market
conditions, its debut status, andthe controversial history of its
sponsor.
The Widjaja family’s
Sinarmas Group owns a 91%
stake in Dian Swastatika
Sentosa, which holds a 87%
stake in GEAR. The Sinarmas
sponsorship deterred some
investors, who still remember
bondholders of the group’s
flagship Asia Pulp and Paper
being practically wiped out
after a default in 2001.
“We cannot recommend any
bonds issued by Widjaja-related
companies due to the family’s
track record of low willingness
to pay,” wrote Lucror Analytics.
However, other companies
related to the family have
managed to access the offshoremarket in recent years, notably
APP-China Group and Bumi
Serpong Damai, and there
was clearly sufficient investor
demand to complete the deal.
Final book statistics were
not disclosed, but, when final
guidance was announced,
orders were said to be over
US$250m. The volatile market
conditions and divisive nature
of the credit meant that orders
reflected true demand and were
not inflated.
The bonds were trading
around reoffer on Friday
morning, though most
investors had taken a buy-and-
hold approach.
Credit Suisse and CLSA were
joint bookrunners.
In November, GEAR
announced it would buy a stake
of around 10% in Australian
gold miner Westgold Resources
for A$67.86m (US$52.7m). International Financing Review Asia February 10 2018 7
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