Singapore Savings Bond

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#41
Singapore perpetual bond investors hope 'never' means three years
Published on May 5, 2015 8:01 AM
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SINGAPORE (Bloomberg) - Singapore's richest investors are hoping that "never" means about three years in the bond market.

Holders of perpetual notes with no set maturity face the island's first redemption options in September, when three companies including oil services firms Ezra Holdings Ltd. and Swiber Holdings Ltd. can choose to repay securities sold in 2012. While Ezra says it plans to pay off the notes and refinance, their yield has surged more than 200 basis points over the last year to 14.2 per cent, suggesting it may be costlier to replace them. Swiber faces the same test after saying it plans to redeem its bonds, which have added more than 230 basis points.

Private banks have snapped up the bulk of Singapore's $9.5 billion of corporate perpetuals on behalf of wealthy clients, reckoning the companies would repay the notes at their soonest chance rather than incur higher interest rates when a so-called step-up coupon takes effect. While that would offer some compensation if the debt stays alive, any mishaps could shake faith in securities that have funded about 15 per cent of the island's corporate debt over the last four years.

If any issuers choose not to pay in September, "there would be some discomfort among investors when they realize that what they've been holding is not necessarily going to be paid off at the time they expected," said Vishal Goenka, the Singapore-based head of local currency credit trading at Deutsche Bank. "There is nothing right or wrong, issuers have already told them from the beginning the option was there, but there would be some confusion."

The absence of a maturity date means perpetuals usually offer higher yields than bonds with one. Companies are taking advantage of Singapore accounting rules that count the notes as equity and a tax law that exempts interest payments, while affluent local investors earning just 0.1 per cent from their cash deposits are lapping up the riskier investments.

"We intend to call the perpetuals in September 2015 and we are exploring a variety of refinancing options to do so," a spokesman from Ezra said by e-mail April 30. Swiber has "sufficient internal resources to redeem the perpetuals," the company said in an e-mail on the same day.

Ezra must repay a $225 million bond due on Sept. 7, or 11 days before the call on its $150 million of perpetual notes. The first securities were issued at a coupon of 5 per cent while the perpetuals offered a fixed return of 8.75 per cent. The offshore marine company had US$158 million of cash at the end of February, according to Bloomberg-compiled data.

Swiber reported an operating loss in 2014 and had US$166.3 million of cash at the end of the year. The company has a $95 million bond due in June and an $80 million perpetual paying 9.75 per cent that can be redeemed on Sept. 25.

The other call occurring that month is on Ezion Holdings Ltd.'s $125 million perpetual bonds on Sept. 14. The marine logistics company's notes are trading above par.

The recurring payment on perpetuals lifts significantly after the date when the company is first allowed to buy them back. Investors often interpret that as a sign the bonds would be redeemed at their first call, according to Deutsche Bank.

If any company chooses not to redeem in September, the coupon for each note will rise by more than 300 basis points, according to data compiled by Bloomberg. That would still be lower than the current secondary yield on Ezra's and Swiber's perpetuals.

"Swiber has said they will call the perpetuals back by refinancing," said Chee Keong Yeak, an equity analyst at Maybank Kim Eng Securities in Singapore. "Right now, it seems like it depends on their relationship with the banks to get a lower yield to refinance the bonds."

In December 2008, Deutsche Bank irked global investors by not repaying perpetuals at their first call, citing high replacement costs. Over the following three days, a Bank of America Merrill Lynch index of riskier debt from some of the world's largest lenders lost 1.7 per cent.

The Association of British Insurers called the bank's decision a "setback for the stabilization of banking markets."

The lack of a perpetual's maturity date, in spite of the incentive to redeem at the first call, allows issuers to treat that debt as equity in their books, according to Choon Yuen Hui, who heads the debt capital markets practice at Singapore lawfirm Wong Partnership. That reduces the companies' leverage even as interest payments increase.

"If structured properly, accountants will be happy to treat such securities as equity," said Hui. At the same time, the interest payments are tax deductible "in a manner no different from traditional bonds," he added.

Non-bank companies in Singapore have issued more than $9 billion of perpetuals since April 2011, when waterworks firm Hyflux Ltd. issued the first note. That's about 15 per cent of all corporate debt excluding government and banks issued in the period. The amount of notes that can be redeemed for the first time rises to $1.1 billion next year and surges to $4.9 billion in 2017.

"The impact on the market is hard to judge" if any issuers choose not to repay, said Dilip Parameswaran, the Hong Kong-based head of Asia Investment Advisors Ltd. "The Singapore dollar market is small and dominated by domestic institutional and retail investors. They may have invested based on an expectation of call, and may be disappointed if the bonds are not called."

As companies consider the cost of refinancing, he said, "if the secondary yields are higher than the step-up coupon, then it makes no sense for the company to call the perpetual."
- See more at: http://www.straitstimes.com/news/busines...OhZW9.dpuf
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#42
Looks like a fair system - hats off to the initiative from MoF/MAS.

PS: Moderator - you might want to merge this with a separate thread with the title "Singapore Savings Bond"

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SINGAPORE: The first Singapore Savings Bond is expected to be issued in the second half of 2015, and the Monetary Authority of Singapore (MAS) on Monday (May 11) released more information on how investors can buy and redeem them.

The Savings Bonds are a new type of Singapore Government Securities designed to offer individuals a "long-term, flexible savings option with safe returns", MAS said in a news release.

The launch of the bonds programme will be announced at least one month before applications for the first issuance open, MAS stated. New bonds will be issued every month for at least the next five years, added Senior Minister of State for Finance Josephine Teo in Parliament on Monday.

Those interested in applying for the bonds will need to have a bank account with participating banks, currently DBS, POSB, OCBC or UOB. Prospective investors will also need to have an individual Central Depository (CDP) Securities account with direct crediting service, allowing payments to be made directly to a bank account.

Individuals who wish to buy the bonds must be at least 18 years old, and have the necessary bank and CDP accounts before the bonds are launched, said MAS.

Investors will be able to apply for and redeem the Savings Bonds through DBS, POSB, OCBC or UOB ATMs, or through DBS/POSB internet banking channels. Non-refundable transaction fees will be charged by the banks for each application and redemption request.

APPLICATION, REDEMPTION PERIODS

A new Savings Bond will be issued monthly, and applications will open on the first business day of each month, and close four business days before the end of the month. Requests to redeem existing bonds can be made during the same period, added MAS.

Requests to buy or redeem the bonds will be processed three business days before the end of the month. The Savings Bonds will be issued on the first business day of the next month, and the redemption proceeds will be processed by the second business day.


The investors will be notified by mail if their application requests are successful, and when the redemption requests are processed.

ALLOCATION OF BONDS

MAS will announce the issuance size of each Savings Bond issue before application opens. If the bonds are oversubscribed for the month, MAS will allocate the bonds to all applicants in increasing multiples of S$500, until the individual gets the full amount applied for, or when all available bonds have been allocated, whichever comes first.

“This means that smaller applications will have a higher chance of receiving full allotment, and individuals with larger applications may not get the full amount they applied for,” explained Mrs Teo.

Individuals will only be able to buy the bonds using cash, and application and redemption requests must be made in multiples of S$500.

Investors will be able to apply for each Savings Bonds issue with amounts ranging from S$500 to S$50,000, and they can hold up to S$100,000 of Savings Bonds at any point in time. The Government will review the caps if there is a need for it, after the programme is implemented, said Mrs Teo.

For 2015, the Government could issue between S$2 billion to S$4 billion of Savings Bonds, added Mrs Teo.
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#43
The bond is coming...

Singapore Savings Bonds will be issued on Oct 1

SINGAPORE (July 21): The Monetary Authority of Singapore (MAS) says Singapore Savings Bonds will be issued on Oct 1, 2015.

Investors will be able to apply for these bonds from Sept 1, says Ravi Menon, MAS managing director, at a media briefing on the MAS Annual Report 2014/15, local media reported.
...
http://www.theedgemarkets.com/sg/article...sued-oct-1
“夏则资皮,冬则资纱,旱则资船,水则资车” - 范蠡
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#44
Quote:The wait for investors is over - Singapore Savings Bonds (SSB) open for applications tomorrow.
Interest seems to be growing for the product, with the Monetary Authority of Singapore (MAS) and DBS Bank receiving many calls on the bonds.
At 4.30pm tomorrow, MAS will post a notice on the Savings Bonds website at www.sgs.gov.sg/savingsbonds detailing the amount of bonds on offer and the payout schedule.
Applications open at 6pm on the sameday and you can lodge your request through ATMs of DBS and POSB, OCBC Bank or United Overseas Bank.
But you will need an account with those participating banks and an individual Central Depository (CDP) account with direct crediting service. There is a $2 non-refundable transaction fee for each application.
It takes around two weeks to set up a CDP account with direct crediting service activated. The minimum application amount is $500 for each bond issue with the maximum at $50,000.
Individuals can hold only a maximum of $100,000 worth of SSBs.
Successful applicants will get their bonds on Oct 1. If your application is unsuccessful, the money goes back to your bank account.
However, application fees and charges will still apply. The Government will issue $2 billion to $4 billion worth of the 10-year bonds this year with a new batch released every month.
The bonds are issued for 10 years but are flexible in that they can be redeemed in any month before maturity with no penalty. The yield will be about the same as that of a Singapore Government Security.
A spokesman for DBS said that about half the calls it has been getting are from people over 47 years old.
This could indicate that some people see the bonds as a handy investment leading up to retirement.
The SSB inquiry centre and Savings Bonds website have also been used by those seeking more information, said a MAS spokesman, adding: "We advised that individuals should compare the features and risks of various (investment) products before making an investment decision.
"They could consider, for instance, their investment horizon, desired return versus acceptable risk, and the chance that they may have to sell or redeem their investment to meet unexpected needs for cash."
There is a large pool of potential investors, with about 69,000 new CDP accounts having been opened in the 12 months to June 30, according to the Singapore Exchange.
This gives a total of 1.65 million account holders as at June 30.
- See more at: http://business.asiaone.com/news/apply-s...cVsvh.dpuf

For those who are interested.
You can count on the greed of man for the next recession to happen.
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#45
Just a point to take note. There is a $2 application fee (like an IPO application) and there is likely to be other charges from banks and CDP who will be handling the allocation for you. Hence I will strongly advise not to adopt a short term horizon of 2 years or less and bid $1,000 per application when buying these SSB. This is because it may turn out better for the money to be left in the bank account (e.g. OCBC 365 account).

In addition, for VB members who are 50 and above, earn less than $6,000 a month, own a home and a combined CPF balance of about $130k, I will strongly advise to consider topping into the CPF SA instead as it can act like a "<5 year CPF bond" with 4 % interest. And you get tax savings
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#46
Agree with CY09, maybe savings in OCBC360 or UOBOne don't yield more than SSB, but at least with greater flexibility and carries lower risk than the listed SSB in my opinion. Going forward we can also anticipate gradual increase in FD interest rates as well as more better savings products from financial institutions.
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#47
I'm not aware that the SSB is going to be listed.
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#48
Hi Egghead,

The Singapore Saving Bond is similar to an IPO, except you can't buy and sell on the SGX. It is also put under your CDP. In addition, there is a chance you may not get the amount you subscribed for in an event of over subscription. Please see the attached link, page 5

http://www.sgs.gov.sg/~/media/bonds/File...ations.pdf
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#49
I always thought that SSB going to be listed because it will be exchange traded??
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#50
It would be exchange traded if I am not wrong. You just sell back to the government. I agree with the points above; comparing the SSB with commercial offerings is apples and oranges because the intention behind them is different and not meant to compete with banks (although I think this is inevitable to some degree).
You can count on the greed of man for the next recession to happen.
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