* Restructuring and refinancing remain dominant themes for 2017
By Kit Yin Boey
SINGAPORE, Dec 19 (IFR) - Singapore dollar bonds worth S$22 billion ($15.5 billion) are callable or due to mature next year, exposing issuers and investors to refinancing risks as borrowing costs rise in the US.
The US Federal Reserve last Wednesday raised policy rates by 25bp and surprised markets with guidance for three, instead of the expected two, rate increases next year. US Treasury yields immediately jumped 10bp-11bp across the curve, pulling Singapore dollar swap offer rates higher on Thursday morning. The five-year and 10-year SOR soared 10bp to 2.36 percent and 2.87 percent, respectively, from the previous day's close.
Issuers that sold bonds in early 2012, for example, could be looking at an increase in five-year base rates of around 100 basis points when they come to refinance, as the benchmark rate was only 1.34 percent at the start of that year.
Pricing issues aside, Singapore bankers are still fairly sanguine about refinancing risks, pointing out that most of the maturing bonds will come from high-grade borrowers, which will still find healthy demand for new issues, albeit at higher absolute yields.
Indeed, Triple A rated government agency Housing and Development Board accounts for S$3.4 billion of next year's maturing bonds. Placing its bonds is usually not a problem and it has sold S$4.5 billion of notes in 2016 alone.
Bankers also expect Genting Singapore to consider a new financing well ahead of 2017 call dates on S$2.3 billion of perpetual notes, although analysts stress the group is in no immediate need of cash. A S$1.8 billion 5.125 percent perp is callable on September 12 and a S$500 million 5.125 percent retail perp is callable on October 18.
"The perps still have some legs to stand on. Genting has spare cash to pay down if their projects in Japan and South Korea do not happen," said a Singapore banker. Analysts estimate Genting's cash pile to reach S$4.7 billion at the end of this year.
"However, they will need to manage their needs, given that business prospects in the industry can be challenging," he said.
The resort and casino operator, rated A3/A- (Moody's/Fitch), can expect healthy demand for a potential new issue, especially among institutional investors, because of a woeful lack of bond sales in the second half of this year. WEAK VOLUMES Bonds totalling S$17.5 billion were issued to date in 2016, down 18.5 percent from last year and the lowest since 2009, when S$11.6 billion was raised, according to Thomson Reuters data. The last quarter has been particularly weak, with a mere S$1.9 billion of notes sold after a slew of defaults earlier in the year.
"Primary issuance in the Singapore dollar bond market should be better in 2017, coming off this year's lows and, hopefully, no further big shocks will affect the SGD market," said Tan Kee Phong, head of capital markets at OCBC Bank.
"This year, the Singapore market was resilient against three major surprises - the UK vote to leave the EU, the US presidential vote for Donald Trump and the series of bond defaults and restructurings in the local market. The restructurings were confined mainly to oil and gas and shipping industries and did not spread to other sectors. This reflects the maturity of investors - a positive for further development of the Singapore dollar bond market."
Bank capital deals from both local and foreign banks are likely to remain a strong theme as Singapore investors have shown strong appetite for riskier, high-yielding assets from high-rated banks. Bankers are also hoping that foreign banks, particularly those from the US and Europe, will consider selling non-preferred senior notes in Singapore to count towards their total loss-absorbing capacity (TLAC) ratios. MORE STRESS? Restructuring of bonds of financially strapped issuers is expected to continue into next year, with bankers expecting those affected to be mainly small and medium-sized companies. The market is closely watching a number of credits, including International Healthway Corporation.
IHC lost its two prime Australian properties in September after bank-appointed receivers sold the assets. It now faces a shareholder revolt over its plans for a placement of new shares.
Market chatter has suggested a potential plan to extend for two years IHC's two outstanding bonds: a S$50 million 7 percent due on April 27 2017 and a S$50 million 6 percent due on February 6 2018.
The hospital-management company alarmed noteholders on August 8 when a coupon due on the 2018 notes was delayed. The payment was made two days later, after what IHC said was a delay in the processing and remittance of the funds. (Reporting by Kit Yin Boey; Editing by Daniel Stanton)