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Temasek swoops on
strong window
Emerging Markets Singapore investor breaks six-year absenceBY FRANCES YOONTEMASEK HOLDINGS seized an
opportunity in an improving
MARKETûTOûSELLûITSûlRSTû53ûDOLLARû
bonds in six years, locking in
US$1.35bn of long-term funding
from investors hungry for Triple
A assets.
Singapore’s investment fund
priced the 3.625% 10-year senior
bonds at Treasuries plus 72bp,
SETTINGûITSûlRSTû53ûDOLLARû
benchmark since a US$1.7bn
dual-tranche offering in July 2012.
Orders peaked at US$6.5bn
BEFOREûSETTLINGûATûAûlNALû
US$4.7bn, marking one of the
highest order books seen in
Asian G3 markets this year.
The latest deal came in a
strong week for primary issuance
ANDûSATISlEDûPENT
UPûDEMANDûFORû
high-quality paper among
investors seeking protection
against volatile markets and
rising interest rates.
“Our USD issuance was in
response to enquiries from
institutional investors about
high-grade USD bonds,” a
Temasek spokesman said in an
email. “These issues increase our
FUNDINGûmEXIBILITYûANDûENHANCEû
OURûCAPITALûEFlCIENCYv
The notes will be issued by
Temasek Financial (I) and are
expected to be rated on par with
!AA!!!û-OODYS30 ûRATEDû
guarantor Temasek Holdings.
0EOPLEûFAMILIARûWITHûTHEû
situation said that Temasek has
always been opportunistic and
that last Wednesday offered a
good window to capture high-
grade demand ahead of this
week’s potentially disruptive
"ANKûOFû*APANûANDû&EDERALû
Reserve meetings.
Risk sentiment has improved
in Asia’s primary bond markets
lately after defensive trades with
high ratings tightened in
secondary trading.h0EOPLEûUNDERESTIMATEûHOWû
much demand there is for Triple A
paper within investor buckets and
the help it could create in terms of
bringing the average rating of the
portfolio up,” said one of the
people familiar with the deal.
The bonds were well bid in the
aftermarket, moving to a range
of Treasuries plus 64bp–67bp.
Fair value was estimated
around Treasuries plus 70bp–
75bp, based on a range of data
points that include Temasek’s
US$1.2bn January 2023s and
Triple A rated US corporate
credits.
The 2023s were cited around
G plus 62bp, and adding a 10bp
EXTENSIONûFORûAûlVEûTOû
YEARû
curve meant the latest deal paid
a minimal new issue concession.
Meanwhile, Triple A rated US
corporate 10-year credits such as
Microsoft and Johnson & Johnson
were trading in the G plus 60bp
range. Walmart’s recently priced
US$2.75bn of 2028 bonds were at
69bp. As those bonds are SEC-
registered and are more liquid,
some investors wanted more
spread from Temasek.
Appetite was robust, allowing
the leads to tighten guidance
from the marketing range of
90bp–95bp announced on
7EDNESDAYûMORNINGû0RICINGûWASû
subsequently tightened further to
Treasuries plus 80bp area, and
lNALLYûTOûBP ûPLUSûORûMINUSûBP
US investors bought 46% of
the 144A/Reg S and 3c7 paper,
Asian accounts 44% and EMEA
accounts 10%.
"YûINVESTORûTYPE ûASSETû
managers booked 43%, central
banks and agencies a combined
25%, banks 14%, insurers and
pension funds a combined 9%,
corporates 7%, and private banks
and others 1% each.
Bank of America Merrill Lynch,
Citigroup, HSBCû"$ and MorganStanley were bookrunners. (^)
lending in the last couple of
years, mirroring previous
developments in the UK.
In Germany, historically a
DIFlCULTûMARKETûFORûDIRECTû
lenders to tap due to its
fragmented banking system,
48% of leveraged buyout deals in
THEûlRSTûQUARTERûOFûûWEREû
funded by private debt funds,
according to GCA Altium.
France, meanwhile, accounts
for a quarter of the overall market,
ACCOUNTINGûlRMû$ELOITTEûSAID
h"ANKûRETRENCHMENTûISû
continuing to play out across
continental Europe, echoing
what took place in the UK
SHORTLYûAFTERûTHEûlNANCIALû
crisis,” Dennis said.
BY THE WAYSIDE
Large fund sizes means funds
are poised to snap up market
share from banks in the
traditional middle market -
despite funds’ higher cost of
lNANCINGû
ûANDûCANûTARGETûBIGGERû
deals as investor resistance in
the large cap market encourages
PRIVATEûEQUITYûlRMSûTOûSEEKû
other options.
In the middle market, sponsors
are turning to direct lending funds
as they prefer the simplicity of
dealing with a single party on a
transaction. The traditional four-
bank club deal has “fallen by the
wayside”, one banker said.
At the top end of the
leveraged loan market, sponsors
have been pushing the market
hard with borrower-friendly
DEALS ûBUTûINVESTORSûAREûlGHTINGû
back on aggressive
documentation and tighter
margin levels, which could
BENElTûPRIVATEûDEBTûFUNDSûBYû
allowing them to market
THEMSELVESûONûTHEIRûmEXIBILITY
“Depending on a sponsor’s
needs, they may turn to us instead
of the capital markets because
they need to move quickly and
provide greater certainty of
execution,” Dennis said. (^)
In a rising interest rate
environment, some banks could
try to use their consent rights to
reprice loans at even higher
levels, which could leave
lenders lacking consent rights at
a distinct disadvantage in
negotiations, Fitch said.
WORK IN PROGRESS
In Europe, banks are working
internally on the issue and also
with the Loan Market
Association, which published a
revised replacement screen rate
clause on May 25.
LMA documentation previously
included a calculation of interest
clause that gave several options if
OFlCIALLYûPUBLISHEDûBASEûINTERESTû
rates - so-called screen rates - are
not available, with lenders’ cost of
funds as the last option.
Agents and borrowers can
negotiate an alternative base
rate, but that requires all-lender
consent and is seen as a short-
term solution.
The replacement screen rate
clause previously allowed most
lenders to agree amendments to
replace the Libor rate, but that
clause would only be triggered if
no screen rates were available.
The revised clause is more
mEXIBLEûANDûALLOWSûLENDERSûTOû
put a replacement rate in place
without unanimous consent,
and can be triggered even if
Libor is still available.
The LMA also tackled the
transition period between
reference rates by including
pricing adjustments to reduce the
gap between Libor and its successor
via amendments and waivers that
do not need 100% lender consent.
)NûTHEû53 ûTHEû"USINESSû,OANSû
Working Group of the
Alternative Reference Rates
Committee is currently
considering Libor replacement
language that could bypass the
consent issue, Fitch said.
If Libor is replaced, the
question of who bears the cost
of the amendments remains
UNANSWEREDû"ORROWERSû
normally pay amendment costs,
but will be reluctant to pay for
changes that will increase the
cost of their loans.