50SharesOfGrey

This has been an interesting week for investors who have been keeping up with market news – more details about the Singapore Savings Bonds were released by MAS on Monday, and several finance bloggers have touched on the topic as well. Further into the week, we had Frasers Centrepoint Limited launching their discretely callable bonds for retail investors as well. Is Singapore’s retail bond market starting to heat up? Allow me to share my opinion on this matter.

Singapore Savings Bonds

This is designed for investors who are risk-adverse, and with the coupon rates closely following the rates on SGS bonds.  With a cap of $100,000 per person, it seems like a good replacement to fixed deposit rates currently being offered by the banks, since the SSBs can be redeemed monthly, as compared to a lock-up period for the fixed deposit. The only caveat though, is that the interest rate is “stepped-up”, depending on the duration of the bond you choose, and on how long you hold it.

A CDP account is required to hold the bonds, and this seems to be both a logical and interesting choice – logical, being that the CDP holds securities for investors, and thus would be a natural fit, and also interesting, as usually securities that are held in the CDP are also listed on the SGX. Would the SSBs be allowed to be traded on the secondary market? Only time would tell.

Lastly, with the banks being commissioned to handle the buying and selling of the SSBs, I’m wondering if the brokerage houses would petition to MAS to allow them to handle them as well – after all, a small cut is better than no cut, especially when economies of scale is in play. Again, time would tell if this happens.

Conclusion: For me, it would be a good place to park money which I use as a “suitcase of money” (SSBs), rather than the “warchest” (bank fixed deposit), as the SSB is more liquid than a fixed deposit. The only problem though, would be choosing how long I would want to park my money, and on how much money I would put in.

Frasers Centrepoint Limited Retail Bonds

This is a corporate bond, and depending on the company, there is an element of credit risk (i.e. bankruptcy). For Frasers Centrepoint, one of it’s businesses, Frasers Centrepoint Trust, has been recently upgraded by Moody’s to Baa1, which is seen as a lower-medium grade rating for it. In short, it means that it is somewhat creditworthy, and thus the chances of default are pretty slim (about 2.9%, from this source). This applies to one of it’s businesses of course, but it should be safe to say that Frasers Centrepoint should – in theory – be rated near Baa1.

Given that the bond issue is used mainly for “general corporate purposes, including refinancing the existing borrowings, and financing the investments and general working capital 3 and/or capital expenditure requirements”, it would seem that it is most likely issued to hedge against the risk of a rising interest rate in Singapore.

This bond isn’t a simple bond, because after the 4th year, Frasers Centrepoint Limited has the choice of redeeming the bonds, with a premium above the par rate of $1 (bonds are always $1 per unit in the Singapore market) as set out in its prospectus.

FCL_Bond_redemption

 

Conclusion: With this information, it looks like a good bargain, especially if the bonds are redeemed in May 2019, but I wouldn’t put too much money into it, as there might be opportunity risk in terms of market movements, investment yields on other shares, or even on Frasers Centrepoint’s own stock itself.

Additionally, given the timing of this issue and release, I would think it is a “cash-grab” for money from retail investors, before the SSBs become available to the general public for a lower minimum investment amount. Furthermore, what’s to say that other companies would want a slice of the pie as well? Most likely they’re adopting a wait and see approach on this. In short, white on paper, but some shades of grey on the moral front.