Singapore investment fund Temasek Holdings has this year stepped up its capital market activity, establishing itself as a savvy, opportunistic issuer with new benchmarks in both the domestic and offshore markets.
Temasek launched its debut sterling bond in July and, days later, priced the first 40-year deal in the Singapore dollar market. Both deals were rare investment opportunities that bond buyers welcomed with gusto. Furthermore, they enabled Temasek to secure long-term funding at a competitive rate, while opening the door for other issuers to follow.
“Temasek issued two different currencies in quick order, printing its sterling bonds first and following up with the inaugural 40-year Singapore dollar transaction within 72 hours. It showed its ability to tap different pockets of funds quickly – something very few issuers can do in these volatile times,” said Aaron Russell-Davison, head of Asian debt syndicate at Standard Chartered Bank, back in July.
DBS Bank and Standard Chartered were joint bookrunners for the 40-year bond, with the former a global coordinator.
Temasek’s S$1bn (US$749m) 40-year bond was a pioneering deal in a market where ultra-long tenors are rare. Singapore’s swap offer rate curve does not extend beyond 30 years, while the Singapore government securities curve does not extend beyond 20 years. The deal, nonetheless, drew strong support from insurers that were keen to match assets and liabilities.
Execution was lightning quick, with books opening at 9:30am on July 22 and closing within a couple of hours. The final book size was S$1.7bn and the deal drew robust demand from overseas accounts, with Hong Kong investors accounting for 12% of the demand, a fairly high percentage, given that Sing dollar deals have traditionally been placed entirely with domestic investors. Singapore investors booked the remaining 88%.
“We are seeing increasing demand from foreign investors, which is a good sign as it shows that the market is deepening. Post Temasek’s bonds, we could see more issuers pushing tenors out as long as investors can accept their credit for longer tenors,” said Clifford Lee, head of fixed- income at DBS, when the deal priced.
Before Temasek’s 40-year bond, the longest paper in the market was a 30-year S$300m bond, which the investment fund issued in November 2009. The bond paid a 4.2% coupon, the same interest offered for its 40-year bond.
Temasek has been busy in its domestic market this year. In February, the investment agency issued a S$1bn 10-year bond, followed soon after with another S$1bn through a dual-tranche 15- and 25-year deal. The funding spree paved the way for many other government-linked companies to issue bonds, including SingTel, SembCorp Financial, CapitaLand, Singapore Airlines and Singapore Post, which followed with 10-year bonds of their own.
“Temasek’s bond programme helps to establish public markers of our credit quality, and provides us with the discipline of engaging with an expanded international stakeholder base. The bond issuance is also part of our efforts to enhance capital efficiency and increase our funding flexibility. We also want to establish our yield curve, and our bond prices can be reference points for our portfolio companies’ bond issues,” a Temasek spokesman said in an email to IFR.
Meanwhile, Temasek re-opened the sterling market for Asian issuers after a one-year break with its £700m (US$1.08bn) dual-tranche 12- and 30-year sterling deal in July this year. Execution was again swift, with the combined book closing at around £1.67bn within a couple of hours, paving the way for pricing at the tight end of guidance at Gilts plus 90bp on the 30s and plus 95bp on the 12s.
The deal was a strategic trade for the Temasek, enabling the investment agency to broaden its investor base opportunistically and to tap the UK insurance base to raise funds in a long tenor. Bankers involved also suggested that the deal offered a natural hedge against currency fluctuations for Temasek, which had some sterling assets.
The enthusiastic response to Temasek’s new sterling deal prompted speculation that other Asian issuers would look to follow it into the UK market. However, most bankers agreed that only a handful of names could tap the 30-year point, and the feat had yet to be repeated. Deutsche Bank, HSBC, RBS and UBS were joint lead managers on the sterling deal.
Denise Wee