Temasek bond issues fire up market
Siow Li Sen
Wed, Mar 24, 2010
The Business Times

(SINGAPORE) The local bond market is buzzing - issuance has hit $5 billion even before the quarter has ended, helped in no small way by Temasek's 5 benchmark issues over the last five months.

The Singapore dollar bond market has been small. Since 2006 issuance has averaged $10 billion to $12 billion a year although this rose to $16 billion in 2008 which included $5.9 billion issuances from the three local banks and Maybank.

Bankers say there's a lot of interest from foreign and local issuers and noted new participants trading in the secondary market.

Tan Lay Hoon, OCBC head of capital markets, said she expects the current higher level of activity to continue for 'at least the first six months of the year' and is 'expecting a couple more benchmark ($500 million and up) issues.'

Singapore's safe haven reputation has played a major part in attracting investors and issuers such as banks and corporates to raise funds in the local debt market. This was driven home during the financial crisis when credit markets elsewhere shut down in the last quarter of 2008 and first quarter of 2009.

'The Singdollar market reopened much faster. The Korean banks came in and could issue, even if they had to pay quite lofty spreads, but this showed it was business as usual,' said Kenneth Yeoh, Standard Chartered Bank, director, capital markets.

And crucially Temasek's five benchmark issues over the last five months for the longer tenors of 10 to 30 years broke the ceiling for longer range issues - and set the marker for others to follow.

'What has changed for issuers and investors was Temasek's five benchmark issues which raised $2.6 billion within five months,' said Clifford Lee, DBS managing director and head of fixed income, global financial markets.

They were sold in classic book building bidding style which the market finds is a fair system as it helps with price discovery.

'They were very convincingly oversubscribed - double the demand,' he said.

Bankers said that although there are the Singapore Government Securities bonds, nobody prices off them because of their extremely low yields. They are also not actively traded.

'There's been no government curve as such but now there's a nice little runway for others to follow,' said Mr Yeoh, referring to the Temasek issues.

A Monetary Authority of Singapore spokeswoman said that in the second half of 2009 alone, the market saw more than $2 billion of new issuances from top AAA-rated issuers like the World Bank and KfW Bankengruppe.

'We have also seen other large Singapore corporates, statutory boards, foreign financial institutions and property-related firms adding nearly $5 billion to the amount of S$ debt issuance in 2010 so far,' she said. 'The diversity in S$ debt tenors available helps to address a broad range of investor interests, from banks' demand for liquid assets in the shorter end to meet liquidity requirements to insurers' preferences for longer dated assets to match their liabilities.

'We welcome Temasek's recent debt issuances, as they help to extend the yield curve and bring credit diversity to the corporate debt market,' said the MAS.

Take yesterday's SingPost $200 million 10-year bonds which because of the overwhelming demand, was priced at 62.7 basis points above the 10-year swap offer rate, lower than the indicated 65-75 basis points range initially given.

'It was a classic bond deal. Through a book building bidding system, it meant that if there is more demand, the issuer could sell at a better (cheaper) price,' said Mr Lee.

SingPost's issue was three times oversubscribed within five hours, hence the tighter pricing, he said.

In the past, a corporate wanting to issue a bond would be sold by a few banks who would typically fix the price and then onsell to the market. If there was more demand than expected, the issuer could not benefit or if it was not sold out, the banks would then be stuffed with the bonds.

Bankers also note the emergence of new participants in the secondary market - traders from funds and sovereign wealth funds as well as private bank clients.

Singapore is home to global investment managers investing in Asian markets, providing a strong demand base, said the MAS. Total assets under management by Singapore-based institutions stood at $864 billion as at end 2008, of which 17 per cent were invested in fixed income.

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