Singapore Perpetual Sales Rise to Record as Investors Seek Yield

Companies are selling Singapore dollar-denominated bonds with no fixed maturities at the fastest pace on record as low interest rates spur investors to hunt for higher yields.

Mapletree Logistics Trust began marketing a sale of perpetual notes to yield in the mid-5 percent range, a person familiar with the matter said today, asking not to be identified because the details are private. Corporates have sold about S$2.7 billion ($2.1 billion) of the bonds since December, more than any other year according to data compiled by Bloomberg which stretches back to 1999.

Falling yields and low benchmark rates are pushing investors seeking higher returns to riskier and longer-maturity assets. Yields on Singapore sovereign debt have dropped 54 basis points since the beginning of July, and the six-month swap offer rate averaged 0.304 percent over the last 12 months, 20 basis points lower than the previous 12 months.

“We’ve been in a low interest environment for quite some time, and investors have started to look for higher-yielding alternatives,” Clifford Lee, head of fixed income at DBS Group Holdings Ltd., said in a phone interview from Singapore today. “This can be achieved by buying bonds from lower-rated companies or by buying notes with longer tenors.” DBS is helping to arrange Mapletree’s sale, the fifth of such notes denominated in the island-state’s currency this year.

Supply Increases

Perpetual securities accounted for 34 percent of all Singapore dollar-denominated bonds sold this year, versus 7.7 percent in 2011, according to data compiled by Bloomberg. Singapore dollar bond sales more than doubled to S$7.8 billion this year compared with S$3.7 billion the same period of 2011.

The notes pay more than securities with a set maturity to compensate investors for the risk they won’t be called. They’re generally senior to equity and subordinated to other types of debt, and may contain terms stipulating that coupons must be paid if a dividend has been declared. Issuers typically retain the right to call the bonds after a set period.

Genting Singapore Plc, which operates one of the country’s two casino resorts, sold the largest Singapore dollar perpetual bond on record when it issued S$1.8 billion of 5.125 percent notes on March 1, according to data compiled by Bloomberg.

Singapore Post Ltd. and Olam International Ltd., the commodity supplier partly owned by Temasek Holdings Pte., raised S$625 million selling perpetual securities last month while Global Logistics Properties Ltd. increased its 5.5 percent of existing notes by S$250 million in January.

Hyflux Ltd., the country’s biggest provider of water treatment services, became the first company in Singapore to sell perpetual bonds when it issued notes in April, bringing the total for 2011 to S$1.63 billion, the data show.

Perpetual Appeal

Singapore Post’s S$350 million perpetual bond pays 4.25 percent until its first call date in March 2022, more than a 10-year bond it sold in March 2010 which has a 3.5 percent coupon.

Singapore’s central bank uses the exchange rate as a policy tool to manage inflation. It guides the local dollar against a basket of currencies within an undisclosed band, and adjusts the pace of appreciation or depreciation by changing the slope, width and center of the band. Gross domestic product fell an annualized 2.5 percent in the fourth quarter of 2011 from the previous three months, the trade ministry said in a Feb. 16 report.

“With high levels of liquidity among private bank investors across Asia and robust conditions in global credit markets, this is a good time to look at perpetuals,” HSBC Holdings Plc’s Singapore-based managing director for Asia-Pacific debt capital markets, Alexi Chan, said. “For many companies, issuing a hybrid instrument can also bring significant benefits to their capital structure.”

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