Domestic bond, Singapore capital markets deal

IFR Asia Awards 2012
4 min read
Kit Yin Boey

The arrival of corporate hybrids has added a new dimension to Asian debt, but one deal in particular pushed the boundaries. For putting Asia’s local markets firmly on the map, Genting Singapore’s S$1.8bn perpetual is IFR Asia’s Domestic Bond of the Year and Singapore Capital Markets Deal of the Year.

Genting Singapore’s S$1.8bn (US$1.4bn) issue of perpetual subordinated capital securities marked the largest corporate hybrid in the Singapore dollar market – more than tripling the previous record. It was also the largest single tranche ever sold in Singapore dollars, and the biggest corporate hybrid from Asia since 2010.

As a debut issuer, Genting’s list of records is even more impressive. However, the deal’s impact goes beyond its sheer size.

Genting’s jumbo perpetual stood out in a year when investors’ hunger for yield opened a rare window for hybrid issues. The deal was the fourth perpetual in Singapore during the year under review, but the first one that revealed the depth of the city’s local market.

Genting’s hybrid demonstrated the lengths investors were willing to go to in their search for higher yields. By appealing to a broad base of investors, it also opened the floodgates to seven other Singapore-dollar perps that followed later in the review period.

The decision to take the perpetual route stemmed from a desire to build a warchest for expansion without threatening the Malaysian parent’s Baa1/BBB+/A– credit rating.

The notes are callable after 5.5 years, but come with no change in coupon until September 2022, when the coupon will increase by 1.0%. That structure won equity treatment from an accounting perspective, while Moody’s and Fitch each allocated 50% equity credit to the notes, thus negating any impact on the group’s gearing ratio.

“This is Genting Singapore’s first perpetual bond issue, and we are very pleased with the market response. Our investors have given us unequivocal support and of course, it’s thumbs up for our bankers. This issue will put us in a very strong position to tap investment opportunities for new revenue streams,” said Tan Hee Teck, president and chief operating officer of Genting Singapore.

With the hybrid product rapidly gaining traction in low-rate Singapore during the review period, Genting’s ambitious size was always going to be a tough challenge.

Until the March launch, the largest perp had been a far more modest S$500m. To tap the widest investor base and avoid overwhelming the Singapore market, the co-ordinators took advantage of Genting’s regional presence to take the deal offshore, making it the first Singapore-dollar deal sold simultaneously in Malaysia and Hong Kong. In Malaysia, Genting became the first company to win Bank Negara Malaysia’s approval to market a Singapore dollar bond to local investors. DBS ans HSBC were global co-ordinators, and joint leads with CIMB, Deutsche Bank and JP Morgan.

At the same time, Genting Singapore obtained standalone ratings of Baa1/A–, with the subordinated bonds rated two notches lower at Baa3/BBB. That made it the first Singapore dollar perpetual to be rated, allowing more institutional investors to buy into the product and helping private banking clients obtain leverage.

The two-pronged strategy expanded the deal’s reach beyond Singapore-based investors, and it paid off. The final order book reached over S$6bn – the largest, at the time, for any Singapore-dollar deal – allowing the leads to tighten the yield from an initial 5.375% to 5.125%.

With 42% going overseas, the deal also appealed to regional investors, another small step towards greater integration across Asia’s local markets. Malaysian buyers accounted for 24% of the book, with 12% going to Hong Kong.

Genting Singapore’s decision to add another S$500m of perpetual bonds in a retail-targeted trade only weeks later saw the notes give up their early gains and weaken in secondary trading. Having dipped to around 97 in the middle of the year, however, they have since recovered, closing out IFR’s review period at par.

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