Singapore Capital Markets Deal

IFR Asia Awards 2018
3 min read
Kit Yin Boey

Temasek Holdings has long been a hot ticket in the bond market, but its first retail offering was a landmark event that gave more than 53,000 individual investors an alternative channel for their savings and restored confidence in fixed-income investments.

For years, ordinary citizens had clamoured for an opportunity to invest in the state-owned investment company, rated Aaa/AAA (Moody’s/ S&P), which had issued bonds only to institutional investors since it first came to market in 2005.

Temasek’s S$300m (US$218m) 2.7% five-year retail note had an obvious appeal to regular savers, but the deal took on greater significance after a string of defaults had sapped confidence in the Singapore dollar market.

Confidence among retail investors crashed to a new low this year when local power and water provider Hyflux announced in May it was seeking court protection from creditors, including on S$900m of preference shares and perpetual bonds held by some 34,000 individual investors. The local market offered few safe alternatives with only a limited number of retail bonds on offer, mostly from low-rated or unrated corporate issuers.

Temasek’s Triple A rated retail offering in October was just what the doctor ordered. Investors welcomed the robust underlying credit and transparent price-discovery process, and the success of the deal helped restore confidence in the retail market as a stable, long-term funding venue – a long-held government goal.

The issuer could have saved costs by taking the institutional investor route, but it was willing to leave a small premium for retail investors. At 2.7%, the bonds paid about 38bp over Singapore government bonds and about 48bp over the five-year average return on the latest Singapore savings bonds.

Temasek also provided a slight premium in comparison to other bonds from issuers seen as government proxies. Statutory board Housing and Development Board’s 2.42% 2023s were quoted at a yield of 2.62% while Land Transport Authority of Singapore’s 2.9% 2023s were seen at 2.57%.

As a result, the public tranche was over eight times subscribed with S$1.6bn of valid applications received. Temasek decided to increase the original issue size from S$200m to S$300m so that more investors could participate. About 70% of the deal went to investors who subscribed for S$30,000 or below, and all 53,282 valid retail applications were allocated some bonds. A concurrent S$200m institutional tranche also drew S$1.44bn of orders from 76 institutional investors, maintaining Temasek’s engagement with its core institutional base.

The huge success means retail investors can now claim a hand in the building of the local currency bond market, reopening the door for more high-quality issuers in the near future.

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