Singapore Bond Sales Beat Record as Economy Fires
Singapore bond sales are accelerating as companies on an island vying for the title of world’s fastest-growing economy exploit the lowest funding costs in at least two decades to finance expansion.
Temasek Holdings Pte. and CapitaLand Ltd. (CAPL) led borrowers that raised $14.1 billion this year, topping the record $13.2 billion of notes sold in 2001, according to data compiled by Bloomberg. The benchmark three-month interbank lending rate was last at 0.55708 percent, near the lowest since 1987, when data on the Monetary Authority of Singapore’s website starts.
“Singapore is going through an outstanding period of economic growth with most sectors performing well,” Aaron Russell-Davison, head of Asia debt syndicate at Standard Chartered Plc, said in a phone interview from the city-state. “In this context it makes sense that companies are looking to borrow longer-dated money at historically attractive levels.”
The economy of Singapore, Asia’s second-smallest country after the Maldives, may be the world’s fastest-growing in 2010 after ballooning demand for goods and services prompted the government to raise forecasts three times since January. Gross domestic product increased 17.9 percent in the first half, ahead of the trade and industry ministry’s full-year prediction of between 13 percent and 15 percent and surpassing India’s expectations of 8.5 percent growth and China’s of 9.5 percent.
Companies added about 63,000 jobs in the six months to June 30, according to the Ministry of Manpower, a year after Singapore exited its worst recession since independence in 1965. Monthly tourist arrivals exceeded 1 million for the first time in July after Las Vegas Sands Corp. and Genting Singapore Plc opened the city’s first casino resorts.
Property developers, shopping mall operators and hoteliers accounted for about 25 percent of Singapore’s 112 bond issues this year, Bloomberg data show.
CapitaLand, Southeast Asia’s biggest developer, and its units sold S$1 billion ($735 million) of bonds this month in maturities ranging from four to 10 years. The company paid a 4.3 percent coupon when it sold S$350 million of 10-year bonds at par on Aug. 17 compared with 4.4 percent when it sold S$100 million of eight-year notes in 2003, the data show.
“Our approach has been to grow the orchard not squeeze the orange,” said Olivier Lim, CapitaLand’s chief financial officer. We “nurture the group’s access to markets and raise money when markets are conducive, not when we need the funds.”
Temasek is Singapore’s most prolific borrower this year after it issued notes in British pounds and Singapore dollars with maturities of between 10 and 40 years, according to Bloomberg data. The state-owned investment company is paying a 4.2 percent coupon for its 40-year notes, 10 basis points less than the 4.3 percent it paid for 10-year money in 2009.
Temasek sells bonds “as public markers of our credit quality,” spokesman Jeffrey Fang said in an e-mailed response to questions. As well as improving capital efficiency and funding flexibility, they “foster the discipline of engaging with both international and Singapore bondholders,” he said.
The investment company’s 4.2 percent notes due 2050 are trading at 104.83 cents on the dollar to yield 3.958 percent, according to Standard Chartered prices. Sold at par, they traded as high as 109.9 cents on Aug. 18.
“With reasonable growth coming back into Asia, locking in a low coupon for the next 10 years is a pretty smart thing to do,” said Sean Henderson, Hong Kong-based head of Asia debt syndication for HSBC Holdings Plc, the No. 3 arranger of Singapore bond sales this year. “Singapore borrowers tend to be rare and very high quality names, so investors have been comfortable about extending durations in order to get a bit of extra yield.”
When Singapore’s AAA rated Housing & Development Board sold S$500 million of three-year bonds in July it paid a 1.15 percent coupon, according to Bloomberg data. No Singapore borrower has paid more than 7.5 percent this year, the data show.
Olam International Ltd. (OLAM), the Singapore-based commodities trader, paid 7.5 percent this month when it sold $250 million of 10-year bonds, its longest-maturity notes. The bonds traded at 101.13 cents on the dollar to yield 7.338 percent today, according to Royal Bank of Scotland Group Plc prices. Olam declined to comment in an e-mailed response to questions.
While companies can typically borrow larger sums in the U.S. dollar bond market, according to HSBC’s Henderson, they pay slightly less to sell bonds in Singapore. Companies completed 35 U.S. dollar-denominated sales that raised $500 million or more in Asia excluding Japan this year compared to nine corporate sales of at least S$500 million.
The Singapore interbank offered rate that banks charge each other to borrow U.S. dollars was last at 0.31328 percent, its lowest in at least 23 years. The rate rose to as much as 5.7775 percent during the global financial crisis as banks hoarded capital after the collapse of Lehman Brothers Holdings Inc.
Borrowers sold $2.5 billion of bonds in the city in 1999 and issuance ranged between about $5 billion and $7 billion a year for much of the last decade, Bloomberg data show.
“The regulators in Singapore have been working hard to make this market appealing to both investors and issuers,” said Clifford Lee, head of fixed-income for DBS Group Holdings Ltd., the top-ranked underwriter of Singapore dollar bond sales. “There’s no withholding tax and the approval process for foreigners to sell bonds is simple and quick if it’s just an offering to accredited investors,” he said.
VTB Group, Russia’s second-largest bank, raised S$400 million from two-year notes this month. It was the only Russian issuer to target Asian investors apart from Moscow-based gas company OAO Gazprom, which sold yen-denominated bonds in 2007.
Agricultural Bank of China Ltd. (601288), China’s biggest lender by customers, sold $50 million of floating-rate notes through its Singapore unit in April. The lender has offices in the city-state as well as in Hong Kong, London, Tokyo, Seoul, Frankfurt, Sydney and New York, according to its website.
“We are seeing an increased maturity and sophistication in the Singapore capital markets,” Standard Chartered’s Russell-Davison said. “2010 is set to be a big year, reflecting the confidence of both issuers and investors.”
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