Private Wealth Fuels Record Singapore-Dollar Bond Sales

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Private Wealth Fuels Record Singapore Bond Sales
Hotel guests in the infinity pool at the SkyPark atop Marina Bay Sands look out towards the city skyline in Singapore. Photographer: Sam Kang Li/Bloomberg

Singapore-dollar bond sales rose to a half-year record as private-wealth clients in the city-state, which has the world’s highest density of millionaires, sought refuge in the local currency.

Genting Singapore Plc, Asia’s second-biggest casino operator by market value, and Keppel Corp. lead a 44 percent increase in issuance this year to S$15.7 billion ($12.3 billion), compared with the second half of 2011, data compiled by Bloomberg show. Private-banking investors bought as much as 35 percent of Singapore-dollar notes this year, about twice as much as two years ago, according to Deutsche Bank AG.

Top-rated Singapore’s appeal among private-banking clients has risen as the local currency gained 12 percent since 2009 and Europe’s financial turmoil deepened with Greece’s new government struggling to meet targets for cutting its deficit. Singapore-dollar bond sales will at least match last year’s issuance, barring any major market disruptions, according to DBS Group Holdings Ltd., the biggest underwriter since 2009.

“Private banks have been the primary driver of Singapore dollar bond issuance,” Debashish Duttagupta, Asia-Pacific head of investments at Citigroup Inc.’s wealth management business, said in an interview from Singapore yesterday. “The Singapore dollar looks like a safe harbor in these stormy conditions.”

Citigroup ranked second among wealth managers for high net worth individuals in the Asia-Pacific region, according to a Private Bank International survey in 2011.

2010 Record

Singapore-dollar bond sales peaked at S$24.7 billion in 2010, the most since at least 1999, according to data compiled by Bloomberg. In 2011, companies issued S$21.3 billion of securities, the data show.

The country is one of about a dozen globally that still have top rankings from the three credit-rating companies. Denmark increased its bond sales target last week to take advantage of its AAA rated debt as investors flee the euro area.

Singapore’s private wealth grew 8.2 percent in 2011, according to research by Boston Consulting Group, outpacing the 1.9 percent global pace. Total household wealth in Singapore is estimated to grow to $1.4 trillion in 2016 from $1 trillion in 2011, the study shows.

“Noticeable growth of private-bank interest in Singapore-dollar bonds has just started a few years ago,” Clifford Lee, head of fixed income at DBS in Singapore, said in an phone interview on June 22. “With interest rates expected to stay low and market volatility persisting, this interest can be expected keep growing.” DBS arranged S$6.38 billion of sales this year, according to data compiled by Bloomberg.

Equity Slump

More than $4 trillion has been erased from global equities since March amid concern that worldwide economic growth is threatened by Europe’s debt crisis.

This has spurred the three biggest declines in global stocks since March 2009. The MSCI All-Country World Index fell 24 percent from May through October 2011 as Greece struggled to agree with creditors on debt writedowns. The gauge fell 10 percent from the 2012 peak amid concern Greece would exit the euro and the crisis spread to Spain.

The Singapore dollar’s gain compares with a 0.11 percent depreciation in the Hong Kong dollar since the start of 2009. Singapore corporate bonds returned 4.69 percent in that period, compared with 3.86 percent for Hong Kong corporate debt, according to data compiled by HSBC Holdings Plc.

“Investors with Singapore dollar liquidity in search of yield and security are buying domestic bonds,” said Emmanuel Bucaille, head of products Singapore at UBS Wealth Management.

Managed Currency

The Monetary Authority, which uses the exchange rate to manage inflation, said in April it would allow faster gains to damp price pressures. The central bank guides the local dollar against a basket of currencies within an undisclosed range, and adjusts the pace of change by altering the band. Singapore’s consumer price index rose 5 percent in May from a year earlier.

“The strength of the Singapore dollar encourages individuals to switch out of other” currencies, said Sim Buck Khim, co-head of capital markets at Oversea-Chinese Banking Corp. “Participation by private bank investors enlarges the bond market, leading to more deals, bigger deals and higher issuance volumes.”

Foreign companies sold 35.5 percent of Singapore dollar-denominated bonds this year, and Genting Singapore was the biggest issuer, data compiled by Bloomberg show.

Perpetual Bonds

The unit of Kuala Lumpur-based Genting Bhd. sold S$1.8 billion of perpetual notes in March, to yield 5.125 percent, according to data compiled by Bloomberg. It’s the biggest bond outstanding for any Singaporean company, the data show. Keppel, the world’s biggest maker of oil rigs, offered a total of S$900 million of securities this year, including S$400 million of 3.145 percent February 2022 notes.

One-year fixed-deposit rates at banks declined to 0.29 percent this year, a record low, according to central bank data going back to 1983.

Average yields on Singapore-dollar bonds for companies fell 20 basis points, or 0.2 percentage points, to 2.713 percent, this year, according to HSBC indexes. Global companies pay 3.345 percent, Bank of America Merrill Lynch indexes show.

Swiber Holdings Ltd. is marketing a four-year Singapore dollar note at a final yield of 7 percent, a person familiar with the matter said today, asking not to be identified because the details are private.

Private-bank clients were especially drawn to perpetual bonds, said Su Shan Tan, head of private banking at Singapore-based DBS. With no fixed maturity and no principal repayment, these notes generally pay a higher yield.

Casinos, Formula One

Companies have sold more than S$4 billion of these bonds this year, more than any other year, according to data compiled by Bloomberg that stretches back to 1999. As much as 80 percent of these perpetual notes are bought by private and consumer banks, according to Citigroup’s wealth management unit.

Singapore and Hong Kong combined may surpass Switzerland as an offshore center in the next 15 years to 20 years, the Boston Consulting Group research said.

“Singapore, as a city-state, is attractive to high net worth individuals not just as a center to manage their wealth, but also as a place to live, work and play,” said Vish Jain, partner and managing director at the consulting firm in Singapore.

The island held the first night race of Formula One, the world’s most-watched motor sport, in 2008. The government overturned a ban on casinos in 2005, leading to the opening of Resorts World Sentosa and Marina Bay Sands in 2010. These efforts helped Singapore draw a record 13.2 million tourists in 2011.

“People in Asia are accumulating wealth, with a lot of the money held in Singapore,” said James Fielder, Hong Kong-based head of local currency syndicate at HSBC, the second-largest underwriter this year. “Private banks will continue to participate in the deals that are suitable for them as Singapore is a center for private wealth.”

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