CapitaMalls Asia

OFFER OF UP TO S$200 MILLION CALLABLE STEP-UP BONDS
(SUBJECT TO AN INCREASE TO
A MAXIMUM ISSUE SIZE OF S$400 MILLION CALLABLE STEP-UP BONDS)

http://info.sgx.com/webcoranncatth.nsf/V...A0005FCDA/$file/Annc_OIS_20120103.pdf?openelement

10 years bond
coupon rate 3.8%.
if the bond is not redeemed by 2017, the rate will increase to 4.5%.

confirm over-subscription.

A relevant question: Is a yield or coupon of 3.8% p.a. good enough for the first 5-year (of a total term of 10 years, assuming an early redemption happens at the end of Year 5) credit risk on CMA, of which the main underlying business risk is that of a developer of shopping malls, including many greenfield projects in countries like PRC, etc.? IMHO, the answer has to be "NO".

Another relevant question: If CMA's real intention is to raise $200.0m in new debts via a 10-year bond with an average coupon of 4.15% p.a. (the average between 3.8% and 4.5%), why should DBS (as arranger), or any or all potential investors who are rational, agree to accept a 'discount' in the yield or coupon in the first 5 years? IMHO, the people behind the deal in CMA and DBS are not very fair and quite clearly they believe that there are enough ignorant and yield-hungry retail investors around; frankly, even a yield or coupon of 4.5% p.a. is not quite good enough for a 10-year risk on CMA.

Investors should look at the underlying business risks and ask carefully whether the given yields are good enough!! Also, when market interest rates eventually rise in the future, IMHO, it is almost a certainty that such low-coupon long-dated bonds will be priced below their par.

(03-01-2012, 01:59 PM)dydx Wrote: Investors should look at the underlying business risks and ask carefully whether the given yields are good enough!! Also, when market interest rates eventually rise in the future, IMHO, it is almost a certainty that such low-coupon long-dated bonds will be priced below their par.

Good points, thanks!

My view is that the risks are significantly high - PRC itself is going through cooling measures for its property sector and there is no guarantee of tenancy and ability for tenants to pay up should there be a correction in the market. China also runs the risk of over-heating, and a hard landing is now expected.

Of course, we would not expect CMA to price their bonds according to "Junk" status, but I do agree even 4.5% is a little too low. Looking at Hyflux's 6% RCPS, perhaps that would be a more reasonable yield (+ a little more for country risk to about 7-8%) to compensate for risk.

Will give this one a complete miss.

3.8%/4.5% pa for 10-year SG corporate bond. what a joke.... Does CapitaMalls Asia even have an investment-grade rating from S&P, Fitch or Moody's?

I think the main reason of the step up rates are due to the bonds being callable after 5 years. I am not sure as I have not checked the prospectus. Nonetheless, I think default risk is unlikely as I believe MAS would intervene especially after the minibond saga.

Bonds and Preference shares should not compared just solely by the yields as bonds are obliged to provide the principle but not preference shares.

I doubt MAS would intervene if CMA could not repay its bondholders. The bond structure should be not as complicated as minibond, as minibond involves CDO or other financial derivatives (I have not read the prospects yet, just my guess). failure of repayment would be just a normal commercial failure. If MAS intervenes, it will send a wrong message to bond investors.

Quote:Another relevant question: If CMA's real intention is to raise $200.0m in new debts via a 10-year bond with an average coupon of 4.15% p.a. (the average between 3.8% and 4.5%), why should DBS (as arranger), or any or all potential investors who are rational, agree to accept a 'discount' in the yield or coupon in the first 5 years? IMHO, the people behind the deal in CMA and DBS are not very fair and quite clearly they believe that there are enough ignorant and yield-hungry retail investors around; frankly, even a yield or coupon of 4.5% p.a. is not quite good enough for a 10-year risk on CMA.

In the interest of Capitall Mall Asia's shareholders, using bond is so much more better than raising funds via right issues now since the share price is below NTA.
The current 10 years SGS bond is going at a yield of 1.66%, this issue will definitely attract interest from both retail investors and institutions.

Kopi money, anyone?
Assuming that the yield narrows to 3.5% for 10 years without early redemption, the selling price of the bond will be $106.5.

(03-01-2012, 03:30 PM)yeokiwi Wrote: The current 10 years SGS bond is going at a yield of 1.66%, this issue will definitely attract interest from both retail investors and institutions.

Kopi money, anyone?
Assuming that the yield narrows to 3.5% for 10 years without early redemption, the selling price of the bond will be $106.5.

For the 1st 5 years, the coupon is 3.8%. I don't see much Kopi $$ to be made, unless investors are really looking so far ahead and factoring in the 4.5% after 5 years (assuming no redemption).

Further, it's better to compare the yield against other Corporate Bonds, rather than SGS. Fo eg. assuming a 10-years period and using current mkt price, Hyflux 6% CPS @ $105.7 means a yield of 5.25% or a better quality one, DBS 4.7% NCPS @ 107.20 means a yield of 3.82%. I anyhow use a Bond Calculator from internet search to calculate a ball park Yield to Maturity figure to see if your 3.5% assumption holds.

Take note that I didn't check if both Hyflux and DBS Bonds have a 10 years life span and they're for sure not the same.

If I have to pluck a figure from the air, I think $101-$103 is more likely, rather than $106.50. Perhaps still enough for a very small cup of kopi.

Preference shares and bonds are different class of investment instruments. Typically, Preference share will be trading at higher yield due to its perpetual clause. When it comes to liquidation, bondholders will be ranked higher than PS holders.

Currently, the SIA 3 years 2.15% bond is still selling at par in open market. So, it is not inconceivable that CMA bond will be selling at a good premium.

(03-01-2012, 06:51 PM)yeokiwi Wrote: Preference shares and bonds are different class of investment instruments. Typically, Preference share will be trading at higher yield due to its perpetual clause. When it comes to liquidation, bondholders will be ranked higher than PS holders.

Currently, the SIA 3 years 2.15% bond is still selling at par in open market. So, it is not inconceivable that CMA bond will be selling at a good premium.

Thanks! I go chk SGX and most are very thinly traded,

http://www.sgx.com/wps/portal/sgxweb/hom...come/bonds

I may go tikam if I have free cash.

Important dates for those who are keen,

Public Offer via Electronic Application
Opening date and time : 4 January 2012 at 9.00 a.m.
Closing date and time : 9 January 2012 at 2.00 p.m.