Singapore’s local currency market started the year quietly after growing by a record 19.4% in 2012, due to constructive US dollar conditions. But three deals this week is a signal the market is starting to revive and dealers say there is more supply to come.
In 2012, the Singapore dollar bond market grew 19.4% year-on-year (y-o-y). The speed of growth was most marked in the third quarter, at 9.1% quarter-on-quarter (q-o-q), making it the fastest growing local currency corporate market in Asia. But in the fourth quarter, q-o-q growth slowed to 1.4%, according to the Asian Development Bank’s (ADB) most recent edition of the Asian Bond Monitor.
Since then, y-o-y issuance volumes have fallen by more than half. Total volume to date this year is SGD5.59 billion (US$4.49 billion) compared to SGD12.02 billion over the same period last year, according to Dealogic data. However, the number of deals is only down to 31 versus 42 year-to-date in 2012, showing that the size of the deals has fallen more than the number.
“There has been a lot going on but it’s taken a different form. There’s been varied issuance but what you haven’t seen is volumes like last year,” said Clifford Lee, head of fixed income at DBS.
This is the case for two reasons. Firstly many of the big local groups did the bulk of their financing last year in anticipation of rising rates. Secondly, the US dollar market offers a more attractive alternative for many issuers, which has impacted supply in the Singapore dollar market.
“Some of foreign issuers were very drawn to the [SGD] market because the US dollar market was very expensive. But now the dollar market has become quite appealing and issuers choosing between the two would be likely to go to the dollar market first before the markets widen out again,” said Lee.
In addition, yields have risen more at the longer end of the Singapore dollar curve than the shorter end, leading the curve to steepen. Yields on the two-year government bonds have fallen by nine basis points (bp) year-to-date, but those on the five-year benchmark bond have risen by 18bp and on the 10-year by 11bp, according to the ADB.
However, the attractiveness of the US dollar market has not completely deterred foreign issuers from selling SGD-denominated bonds and Lee believes that more new names and foreign names will come to the market this year.
“Of course it is dependent on the basis swap. For investment grade names for certain tenors if you go further along the curve, the Sing dollar market even on an after swap basis can be quite attractive,” he said.
A breakdown of issuer nationality this year to date versus the same period last year shows that in 2013 the market has already hosted a more diverse array of names than last year. Issuers from China, France, India, Italy, Malaysia the Netherlands, Singapore and South Korea have all issued in Singapore dollars in 2013. In 2012 year-to-date, SGD dollar issuance was limited to companies from China, Hong Kong, Malaysia, Singapore and the US, according to Dealogic.
Turnaround
After a slow start to the year, bankers believe that the stars are aligning again in favour of Singapore’s domestic market.
“The trend is in the process of changing. Tata Communications just tapped for SGD150 million, Tata Steel is marketing a SGD$250 to SGD$500 million 10-year and Courts is in the market with a SGD100 million three-year and I understand there is more to come,” said one Singapore-based DCM banker at an American bank.
Tata Steel is likely to issue the longest Singapore dollar bond sold by an Indian corporate later this week, just a few days after Tata Communications priced a tap of its February 2016 deal to yield 3.76%, almost 50bp less than the original bond.
Bookrunners for Tata Communications were ANZ, DBS Bank, Royal Bank of Scotland and Standard Chartered. Nomura, Royal Bank of Scotland and Standard Chartered are joint bookrunners on the Tata Steel bond with SBI Capital Markets joining as joint lead manager.
Indian issuers have played a large role in the Singapore dollar market so far this year, with four deals and an 11.7% share of total issuance, worth SGD650 million. This is almost as much as in full-year 2012, when three Indian issuers – all banks – sold SGD896.7 million worth of deals. This in turn compares to SGD58.9 million from one deal in 2011 and none in 2010, according to Dealogic.
But domestic names are not absent from the market. Courts Asia issued a three-year, unrated, SGD125 million on April 24, with DBS and HSBC as joint arrangers. The deal priced at par to yield 4.75%, with 57% going to private bank (PB) investors, 32% to fund managers, 8% to banks and 3% to insurance and others. Singaporean investors took 90% of the deal.
In terms of other names that could come to the market, bankers agree that name recognition still plays an important role in Singapore due to the large PB investor base. This means that deals with PB rebates will continue to be prevalent.
Other likely sectors include subordinated debt by banks to strengthen their capital structures to comply with Basel III standards. SGD-denominated perpetual bond issuance could make a come-back, depending on market conditions and power and infrastructure names are likely too, said bankers.