Jan 20, 2015

    Pricing gap leads to quiet Singdollar bond market

    A BIG gap in pricing expectations between investors and issuers is causing a dearth of new issues at the start of the year in Singapore's bond markets.

    Potential issuers have been heard sounding out investors and checking market conditions to sell Singapore dollar bonds over the past few weeks, but only Fragrance Group and ICBC Singapore have sold issues to date this year.

    On Jan 8, Fragrance sold a $85 million two-year bond to yield 3.75 per cent at a size thought to be smaller than the issuer had sought. Two days earlier, ICBC Singapore raised one-year 1.15 per cent funds of $15 million.

    It is not for a lack of potential issuers. Religare Health Trust held roadshows for a potential offering on Jan 12, and investors said it wanted to raise some $100 million of either three-year or five-year funds. It has yet to emerge, with bankers saying it was not in need of urgent funds and could afford to wait for better market conditions.

    GuocoLand is sounding out the market for a potential three-year with pricing whispered at 3.7 per cent to 4 per cent, which bankers describe as right at the low end. K-Reit has also been shopping for an offering at tenors of five or seven years, but has not found takers. "Its pricing expectations are just too tight for investors to want to take exposure," said one banker.

    Therein lies the nub of the problem - the gap between investor and issuer expectations are too wide to bridge at the moment.

    "The stand-off won't go away until issuers become realistic at this point of time," said one debt syndicate banker.

    Investors have been alarmed at the sell-off in the secondary markets since early last month, when oil prices crashed and pulled oil-related high-yield credits down with them. Bankers reckon that oil-related bonds have tumbled five to 10 points since then.

    "Investors holding these bonds are still out of the money, even if you include accruals," said one local banker. "Private banks typically buy into new deals when they can switch out of outstanding ones, but, in the current secondary market, you can't get out of the old ones. You can't find any bids out there for the bonds. So they are stuck."

    The pain felt at the sell-off has made investors even more selective, which will make selling new small and high-yield names more challenging.

    It is a situation that Cambridge Industrial Trust (CIT) hopes to overcome via sole lead RBS. CIT held fixed income investor meetings in Singapore yesterday.

    "This is a well-known and regular issuer, its typical issuance size is not large and investors will like it for its defensive nature. So, it may be able to sell a deal," said a banker not involved in the CIT issue.

    Singapore bankers are also exploring other ways to overcome investors' concerns. Indonesia's Logindo is said to be exploring a standby letter of credit from local bank UOB to boost its chances to tap the Singapore dollar bond market to lower borrowing costs.