SMRT Corp, the 62% government-owned operator of the Singapore Mass Rapid Transport system, has tapped the local bond market for the first time with a S$500 million ($271.5 million) issue. DBS and Standard Chartered acted as joint lead managers on the transaction.
The deal follows hot on the heals of the S$800 million debut offering from Singapore Airlines (SIA) earlier this month, jointly handled by HSBC and OCBC. Another S$100 will be added in December on top of the initial offering due to high demand. Pricing for the 10-year deal came with a fixed coupon of 4.15%, to yield 62bp over government bonds and 110bp over swaps. It is currently trading at 94bp over swaps.
The SMRT deal has been split evenly into two S$250 million pieces of three and five year paper. The shorter-dated tranche bears a 2.87% coupon which, because there is no three-year government benchmark, offers a pick up of 125 over two year SGS, or 21 over swaps.
The five-year paper pays a coupon of 3.41%, 69bp over the government benchmark and 23bp over swaps.
An official at one of the leads says that the bought deal was more than fully subscribed at launch, and sold across the board to money managers, asset managers, pension funds and insurance companies.
"The interest shown by the investors has been very strong, which further testifies to the credentials of SMRT," comments Brad Levitt, head of Asian fixed income with Standard Chartered. "SMRT has managed to take advantage of the current low interest rate environment to lock up cheap long-term funds."
Despite the current low interest rate environment in Singapore, Stephen Finch, managing director of debt capital markets at DBS, still feels the deal offers good value to investors. "It [SMRT] has strong financials and extremely high credit quality," he argues. "Many of our customers are looking to move their liquid assets into higher-yielding and low-risk investments. We believe this issue is an ideal opportunity for them."
One investor was not so satisfied with the pricing, but adds that it probably reflects the quality of the issuer. "At these levels, we think it is on the tight side," she says. "But it's pretty much in line with the recent issues by SIA and SingTel. SMRT is regarded as a double-A rated issuer, so these spreads are probably fair given the credit quality."
One DCM head at a rival bank was more critical. "Given what has already been in the market and that this is a first time issuer, I think the deal is very aggressively priced and does not offer great value," the banker argues. "Although the issuer is in a very safe business and is probably a double-A credit, 21bp to 23bp over swaps is probably 20bp too tight."
SMRT will use the proceeds from the sale to finance its acquisition of bus and taxi operator TIBS Holdings and final repayment to the Land Transport Authority for the purchase of operating assets. Anything that remains from these outgoings will be used for working capital.
