SembCorp Industries closed a S$200 million ($157 million) perpetual bond on Tuesday evening, the first Singapore dollar perpetual in three months.
Investor appetite for perpetuals, or bonds with no maturity, has waned amid rising rates. While the city state was once a hotbed of activity for perpetuals, which were sought after by private banks seeking yield, things have changed. The last Singapore dollar perpetual was sold by property developer GuocoLand in May.
"The market has certainly cooled off. A lot of companies are looking at it, but only very select names can come to market," said one source familiar with the deal.
SembCorp, which is 49.5% owned by Temasek Holdings and runs the city state's waste management and utilities, certainly ticked the right boxes. Although it is unrated, it has strong parentage and benefits from the Temasek links. Despite these strengths, demand chalked up a muted S$320 million.
Companies frequently issue perpetuals, which are accounted for as equity, to protect their ratings as they help lower the debt-to-equity ratios of leveraged companies. However, SembCorp was issuing a perpetual as a way to raise cheap equity. "The perpetual pays a coupon of 5% and, if they were to issue equity, it would cost way more than that," the source familiar with the deal said.
A number of unrated companies similar to SembCorp, such as Ascendas, Mapletree and Guocoland, have issued perpetuals instead of raising equity. Private banks were allocated 53%, fund managers, insurance and banks 37% and other investors 10%.
There was no breakdown on how much banks took but, according to the source, some banks bought the perpetuals for asset liability management purposes, as well as to provide secondary market liquidity. Singapore investors were allocated 89% and Hong Kong investors took 10% with the remaining 1% going to other investors.
The perpetuals are callable after five years and at every distribution date thereafter, at par. The distribution resets in the tenth year, at a spread of 218.7bp over the 10-year swap offer rate. In addition, the coupon also steps up by 100bp from the tenth year.
DBS, HSBC and OCBC were joint bookrunners.
