Two borrowers from opposite ends of the Singaporean credit spectrum accessed the international bond markets on Tuesday, marking an unusually active day for the Lion City.
Singapore credits are generally prized for their rarity value as well as their high ratings and Temasek-owned SP Power Assets delivered both with its first benchmark dollar deal since 2012, raising $700 million off the back of a $1.4 billion final order book.
Likewise, Temasek's former assembly and testing company STATS ChipPAC was back in the bond markets for the first time since its 2014 acquisition by a Chinese consortium led by Jiangsu Changjiang Electronics Technology (JCET).
Its upsized $425 million deal provided Asian high-yield investors with welcome diversification away from the property sector, although in many ways STATS ChipPAC is now more of a Chinese company than a Singaporean one given its new ownership.
Both transactions came on a good day for Asian credit with secondary market spreads tightening up to 3bp over the course of the day.
This buying activity followed a similar level of widening on Monday, although sales desks said the selling pressure was nowhere near as bad as traders anticipated when the markets first re-opened after the weekend's terrorist attacks in Paris. Sales desks reported strong buying from retail investors in particular.
SP Power Assets
The new benchmark 10-year Reg S/144a deal represents the first since Singapore Power shed its Australian assets and re-focused on Singapore. This enabled the deal to benefit from 2014's one-notch upgrade by both Moody's and Standard & Poor's.
Backed by its new Aa2/AA rating, the group went out with initial guidance of 115bp to 120bp over Treasuries before tightening to 2bp either side of 100bp. At its peak, the order book hit $1.7 billion before dropping back to $1.4 billion after guidance was revised.
Final pricing was fixed at 99.754% on a coupon of 3.25% to yield 3.279% or 98bp over Treasuries.
Observers said that the order book was fairly concentrated among 97 investors but dominated by high quality real money accounts with an equal distribution split between the US and Asia. About 43% went to each, with the remainder placed in Europe.
By investor type, pension funds and insurers took roughly 40%, with banks on 39%, asset managers 18%, others 3%.
The order book closed at a similar level to that achieved by Singapore Telecommunications in late June, when it raised $500 million from a 10-year bond.
Bankers said investors viewed this deal as the main comparable since Singapore Power's existing 2.7% September 2022 bond is tightly held.
"Fair value for Singapore Power is probably about 5bp to 10bp through SingTel and this deal priced 8bp through," said one banker.
During Asian trading on Tuesday, SingTel's 3.25% 2025 bond was bid on a Treasury spread of 103bp and G-spread of 106bp.
Singapore Power's 2022 bond was bid on a G-spread of 101bp, which means the new offering technically priced 3bp through the group's curve without accounting for the three-year maturity extension.
Singapore Power deserves a pricing premium over SingTel for a number of reasons, not least the fact that it has a one notch higher rating from Moody's and two notch higher rating from S&P. Its deal also has 144a format whereas SingTel is Reg S only.
Moreover, it has full ownership by Temasek, whereas SingTel is listed on the Singapore Stock Exchange.
In its roadshow, Singapore Power pointed out a number of key credit highlights.
The first concerns its position as a natural monopoly in a highly regulated market. The second is Singapore's stable and transparent regulatory regime, with tariffs locked in for five years through to 2020.
"Singapore's electricity market regulatory framework is fully developed and transparent.... the regime has shown a track record of high predictability and stability," S&P said in its rating assessment.
The group also highlighted its strong financial profile with 94.4% of its revenue regulated. However, S&P expects funds from operations to debt to remain above 25% over 2015 to 2016, with negative free cash flow due to its investment programme in Singapore.
Joint global co-ordinators for the bond deal were BNP Paribas, DBS Bank, Deutsche Bank and Morgan Stanley.
STATS ChipPAC
The world's fourth largest assembly and testing company by sales provided one of Asia's most interesting deals of the year on Tuesday given its transaction has no real comparables in the region.
The leads went out with initial guidance around the 8.5% range and decided to price it at that level after the company opted to sacrifice tighter pricing in order to upsize the deal to $425 million from the $400 million it had initially guided.
Final pricing was fixed at par with a five non-call three, Reg S/144a structure.
The B1/BB-/BB rated deal attracted a final order book around the $800 million mark with participation from 120 investors, of which 77% were from Asia, 12% from Europe and 11% from the US. By investor type, asset managers took 86% of the deal, private banks 11% and banks 3%.
"Asian investors are far more familiar with this credit than US funds," said one banker. "They understand the implications of the takeover and the deal drew in new Chinese demand."
However, the banker added that some US-based high-yield investors participated because of the deal's structure, which includes hard asset security encompassing all of the group's operating companies except in Thailand and China. This led Fitch to uplift the deal by one-notch above the group's BB- stand-alone rating.
STATS ChipPAC still has some debt outstanding that pre-dates the takeover. However, its existing 5.375% 2016 bond and 4.5% 2018 bond are extremely illiquid because the merger triggered a change of control put option and subsequent tender offering.
They are currently trading around the 5% level.
The main comparable was US assembly and packaging company Amkor, which is rated B2/BB and has a 6.375% 2022 bond outstanding. This was bid around the 7.41% mark on Tuesday.
Investors then needed to decide what emerging market premium they would bolt on to STATS ChipPAC's bond.
"I think this deal was priced around fair value," one banker commented. "Whether it trades up or down will very much depend on what happens to the wider market on Wednesday."
Proceeds are being used to take out a bridge loan from DBS, which was used to fund the $780 million takeover. Joint global co-ordinators Barclays, DBS and ING are also providing a $500 million loan to re-finance all the remaining debt.
The key hurdle the company needed to overcome is the industry’s deteriorating outlook, which had led both Moody's and S&P to downgrade the company by one notch.
Prior to this, the loss of Temasek as the major shareholder had already prompted a one-notch downgrade. This means the rating has fallen two notches from Ba2/BB+ to B1/Ba3 over the past 12 months.
S&P says it now expects debt to Ebitda to stay above three times due to a downturn in smartphone and PC sales, which is putting pressure on the assembly and testing industry where excess capacity is making it harder to adjust.
On the other hand, the agency points out that capex is low and the group could be upgraded if it can maximise the benefits of its better positioning in China due to the takeover by JCET, which acquired the company in partnership with the government's IC Fund and SMIC.
It concluded that the main rating driver will be how well the two companies integrate and take on their larger and higher-end competitors in Taiwan – ASE and SPIL.
