Source: Straits Times, 15 July 2015
ANOTHER day, another Singapore dollar (SGD) bond sold, as investors' appetite for local debt issued by small companies remains strong. This even as the currency continues to slide following weak Q2 growth numbers.
Bankers say the demand for such sales is measured and that investors hold their assets in SGD, so the currency weakness is less of an issue. One cautioned that the secondary market for bond issues of under S$100 million is likely illiquid.
Religare Health Trust on Wednesday sold S$60 million three-year bonds at 4.5 per cent, said DBS Bank. The Religare deal followed two issues done on Tuesday worth S$135 million.
On Tuesday Nam Cheong sold S$75 million three-year notes at 6.5 per cent, while Roxy-Pacific's S$60 million three-year issue was priced at 4.5 per cent.
All the sales in the past 15 days of July are small, under S$100 million.
So far this month, there has been six deals worth S$340 million. In the same period last year, there were also six issues but they amounted to S$1.05 billion.
Said Aaron Gwak, Standard Chartered Bank head, debt capital markets, Asean: "Issuers are taking a measured approach to the bond markets taking only the liquidity they require." That the issuers are selling shorter tenure bonds and offering high yields adds to their attraction.
"Investors are still looking for investment opportunities in higher yielding assets," said Neel Gopalakrishnan, emerging markets bond analyst, Credit Suisse Private Banking and Wealth Management.
"Some of the recent issues offered reasonable yields for short tenures and their issuance was also helped by the relatively low liquidity in the secondary market for existing issues," said Mr Gopalakrishnan.
He also said these issues did not have overwhelming order books, "which shows that investors are to some extent cautious and are selective in the deals they choose given current market conditions".
Orders for the Religare deal exceeded S$70 million. By allocation, fund managers got 53 per cent of the issue, followed by private banks at 41 per cent and insurance and banks, 6 per cent.
On the weak Singapore dollar, Mr Gopalakrishnan said "most investors in SGD denominated bonds are local accounts for whom currency risk is not a key consideration".
The SGD fell against the US dollar on Wednesday morning to above S$1.36 following the weaker-than-expected advance estimates for Q2 2015 GDP released on Tuesday. It was S$1.35 on Monday.
The economy expanded by just 1.7 per cent year on year versus Q1's 2.8 per cent, and contracted by a larger 4.6 per cent quarter on quarter, annualised, compared to the upwardly revised 4.2 per cent for Q1.
Maybank expects the SGD to deteriorate to S$1.38 by end-Q3 2015.
One banker cautioned that small issues have illiquidity problems.
The problems with small-cap SGD issuers are well known, including a small issue size which leads to illiquid secondary trading, and weak credit quality of issuers, said Timothy Tay, head Asia Pacific credit, UBS chief investment office, UBS Wealth Management.
"Investors who decided to buy such bonds would likely have to hold to maturity, since it becomes difficult to sell these issues in the secondary market over time," said Mr Tay.
In general, issues less than SG$100 million are likely to be illiquid, he said.
"With weak credit quality, these companies have limited balance sheet strength to buffer a downturn in their sector. The offshore marine sector is a case in point," said Mr Tay.