Temasek prices maiden £700 million sterling bond

Temasek has opened this week with the issue of its inaugural sterling bond, a £700 million ($1.07 billion) Aaa/AAA-rated issue. This is the first time the Singaporean investment company has priced a bond denominated in pounds and the first time an Asian corporate has issued in sterling since ICICI Bank priced a £350 million bond in 2007. And being such a rare event, investors were keen to buy into the transaction.

After going on the road early last week, Temasek announced the dual-tranche deal in the London morning on Monday and by the afternoon of the same day it priced £200 million of 12-year bonds and £500 million of 30-year bonds.

The bonds priced with 4.625% and 5.125% coupons respectively. The shorter tranche, which is set to mature on July 26, 2022, was reoffered at 99.665, while the longer tranche, with a maturity date of July 26, 2040, was reoffered at 99.55.

The Reg-S registered bonds were issued through Temasek's $10 billion global medium-term note programme.

The appeal for Temasek of doing a 12-year and 30-year sterling deal was to maximise demand and distribution. "If you look at the way the sterling market functions, there are a number of investors who follow indices that are 15 years and longer or 15 years and shorter," shared one source.

Temasek has built a reputation as a long-term fundamental investor. Therefore, doing this deal was very much a strategic business decision in terms of accessing long-dated markets. Last year it issued a $500 million 30-year bond and in February this year it priced a $1 billion dual-tranche 10-year issue.

Long-dated bonds are found primarily in the US dollar and sterling markets. The Singapore dollar market is long-dated to some degree, which Temasek has taken advantage of. Most recently it sold S$1 billion ($725 million) of 10-year bonds, also in February.

It has a well thought-out plan and "has used different currency and tenor mixes that make sense to its assets and overall portfolio both from a risk management and funding perspective," a banker close to the deal said with regard to Temasek's long-term funding strategy.

Prior to the announcement there had been an initial whisper that the 2022s would price between 97bp and 100bp over the UK yield curve. In the end, the deal priced below that range at 95bp.

The 2040s saw a similar pricing development with the joint lead managers -- Deutsche Bank, HSBC, Royal Bank of Scotland and UBS -- indicating that the yield spread would be within the range of 93bp to 95bp. The bonds finally came to market at 90bp.

The spreads on both tranches tightened by about 5bp to 8bp during Asian trading yesterday and, by late afternoon, the 2022s were trading at 90bp over the UK yield curve, while the 2040s were quoted at 80bp. The tightening was mainly driven by accounts that were looking to top up their initial allocation.

Given that there were no liquid Asia-based benchmarks, the lead managers looked to other investment grade non-UK corporates to gauge the appropriate pricing. Those comparables were Procter and Gamble, Walmart, Johnson & Johnson, Electricite de France, Statoil and Pfizer, which have all recently issued long-dated bonds in the sterling market.