BONDS: South-East Asia issuers bet on demand for high coupons
Source: Reuters/Crack Palinggi
The Menara Rajawali office building is pictured at a Jakarta business district.
Companies in South-East Asia see Singapore as a viable alternative for offerings of high-yield bonds in amounts that would be too small for dollar investors.
High-yield debt has become a predominant theme of the Singapore debt markets this year and a record number of small-cap and sub-investment-grade companies have enticed investors with high coupons.
Data from Thomson Reuters shows that close to S$5bn (US$4.02bn) of high-yield deals have been offered so far this year, compared with an estimated S$4.4bn in 2012 and S$3bn in 2011. Many of these deals were for less than US$100m, too small for the US dollar market.
Companies from across South-East Asia have taken notice of the interest of Singapore investors in high coupons. These include unrated Indonesian conglomerate Rajawali Group, which started a series of roadshows this week in the city state for a potential Reg S bond offering.
At the same time, unrated Indofood Agri Resources, a Jakarta-based integrated agribusiness company, announced plans to diversify into the Singapore market with a new S$500m MTN programme. There were also rumours of Indian and Thai companies considering Singapore deals.
The issuers have been drawn to the ability to sell bonds at lower coupons in Singapore than they can in their home markets, which, in some cases, do not even have high-yield buyers.
Last year, investors in Singapore became renowned for embracing perpetual securities and for chasing yields. As most Singapore investors hold on to their bonds, prices in the secondary market seldom fall below par.
This has seen Singapore become a consistent source of funding for issuers in the region, being available even at times when the US dollar market was tight.
In 2011, a record US$6.2bn of local currency bonds were sold in the city state after dollar markets froze amid the European debt crisis and the US was downgraded.
This has been partly because of swelling appetites of private-banking investors. Reports estimate that high-net-worth individuals in the country held US$857bn in assets last year.
Steady now
However, Perisai Petroleum‘s recent foray suggests that even yield-hungry Singapore investors may draw the line at some point. The Malaysian oil-and-gas service provider, also unrated, raised only S$23m through a three-year bond, despite the backing of three joint leads, two co-leads, and a generous yield of 6.875%.
The issue served notice that, even PB clients, who threw money at any high-yield names last year, were now hesitant about taking on unknown foreign entities.
Indications from the Federal Reserve in May that the US might start to taper its monetary-easing policies rattled local investors to such an extent that they started pulling back and lifting their target yield levels to cushion expected rate increases in the future.
Syndicate desks report that PB clients have stepped back from taking on more risk exposure, and, less leverage has been given to them, although no lines have been pulled.
Institutional investors have also been wary and a number of Singapore dollar bonds have recently traded below par, although to a lesser extent than US dollar securities.
However, some bankers think the high-yield market remains reliable, noting that there is still demand for recognisable names.
“Foreign names come to Singapore because they know it is a viable and accessible market,” said a syndicate head of a foreign bank. “The Singapore bond market is still substantial, and getting along quite healthily, despite the last few months of volatility.”
Rajawali will put that notion to the test. The company needs to build a war chest to fund its recently announced effort to buy out minority shareholders in London-listed Archipelago Resources. Rajawali had a 52.98% stake in the gold-mining firm, but said on Friday that it had secured control of 78% of shareholder votes to take Archipelago private. Press reports estimated that it would need about £126m (US$202.9m) to buy the remaining shares it did not own.
Proceeds from the potential Singapore dollar bond are targeted for general corporate use, which may not directly relate to the MA activity, but the timing looks perfect.
The offering’s lead managers, ANZ, JP Morgan and Standard Chartered, will have their work cut out for them.
Singapore becomes high-yield destination
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