Bond Market Monitor: Fed prepares to taper

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Important Events

·        In the September Federal Open Market Committee (“FOMC”) statement released last Thursday, the committee “judges that a moderation in the pace of asset purchases may soon be warranted” if the US economy progresses as expected towards the goals of maximum employment and price stability goals.

In his press conference, FOMC Chairman Jerome Powell also mentioned that many Fed members believe US employment has already met their standards for “substantial further progress”, suggesting a high chance of them announcing tapering in the next meeting. Furthermore, Powell said it would only take a reasonably good employment report to feel that the test is met. Fed members also foresee the tapering to end around mid-2022.

·        Members of the Bank of England’s Monetary Policy Committee voted unanimously to leave the Bank Rate unchanged at 0.1%. Members also decided that Sterling denominated non-financial investment grade corporate bond purchases will be kept at GBP 20b. The Committee voted 7-2 to continue purchasing UK government bonds in a manner such that the target stock of government bond purchases stays at GBP 875b. The Bank of England has revised down its economic growth expectations for the third quarter while stating that global cost pressures will be transitory.

Asian High Yield Bond Index

·        The Barclays USD Asia High Yield Bond Index fell by 0.14% for the week ending 13 Aug 2021.

·        On Monday, Fantasia was downgraded by Fitch from B+ to B. Its FTHDGR 11.875% 01Jun2023 Corp (USD) fell by 25.2% last week.

·        On Friday, Evergrande did not provide any update on its coupon payment of UDS83.5m due on its EVERRE 8.250% 23Mar2022 Corp (USD).

·        On Friday, Sinic Holdings (Group) Company Limited was downgraded to three notches to ‘Caa2’ from ‘B2’ by Moody’s. Its stock fell by 87% when markets opened on Monday while its bonds are trading at distressed levels.

·        Easy Tactic Ltd bonds received a boost after receiving shareholders financing and repurchasing some of its bonds. Its GZRFPR 8.625% 05Mar2024 Corp (USD) bonds jumped by 21.2% last week.

Interest Rates and Currencies

·        The US dollar appreciated by 0.4% last week. The two-year SGD Swap Offer Rate (“SOR”) and 10-year SGD SOR increased by 5.9 basis points (“bps”) and 7bps to 0.5325% and 1.6475% respectively.

·        The yields of the 2-year US Treasuries (“UST”) and 10-year UST increased by 4.8bps and 8.9bps respectively last week. Yields rose after the FOMC meeting last week as more Fed members expect more rate hikes in 2022 and 2023.

Corporate Updates and New Issues

·        Last Monday, PT Bayan Resource Tbk announced they will redeem the BYANIJ 6.125% 24Jan2023 Corp (USD) in full on 21 Oct 2021 at a redemption price of 100 plus applicable premium, and accrued and unpaid interest on the notes to the redemption date.

·        Oxley Holdings Limited (“Oxley”) announced on Tuesday that they have divested the land parcels at 173-177 Walker Street, North Sydney, Australia (the “Property”) for approximately SGD 96.3m. The Property had a book value of approximately SGD 60m as at 30 Jun 2020. There is no outstanding bank loan secured by the asset, thus the entire amount of the net proceeds will contribute positively to the cashflow of the group and is expected to have a material impact on the expected earnings per share of the company for FY21/22.

Oxley also announced the results of its tender offer exercise in respect of the OHLSP 5.700% 31Jan2022 Corp (SGD) notes. A total of SGD 49.75m was purchased by Oxley and the remaining outstanding amount of the notes will be SGD 100.25m.

Oxley also retapped its OHLSP 6.900% 08Jul2024 Corp (SGD) notes at a price of 100 and issued a new tranche amounting to SGD 85m.

·        On Wednesday, Keppel Corporation Limited announced that Chengdu Hillstreet Development Co., Ltd, wholly owned subsidiary of Keppel Land China Limited, has terminated the sales and purchase agreement with Sichuan Shengdai Food Co., Ltd (“Vendor”). Chengdu Hillstreet had agreed to acquire the Vendor’s interest in a company to be incorporated and into which the Vendor was to inject a 3.35-hectare plot of land in Chengdu, China. However, the Vendor has failed to secure the relevant formal regulatory approval, thus terminating the agreement.

The group announced that it has priced JPY8b 0.99% notes due 2027. Notes will be issued on 29 Sept 2021 under its USD 5b multi-currency medium term note programme. On Thursday, Keppel informed that its divestment of the data centre facility known as Keppel DC Frankfurt 1 has been completed.

·        In an announcement on Wednesday, Ascott Residence Trust notified that approximately SGD 57.3m of the SGD 150.0m raised from the placement of 152,594,100 stapled securities have been used to partially fund the acquisition of its student accommodation property in Lubbock Texas, USA. Approximately SGD 1.5m has been used to pay expenses in connection with the private placement transaction.

·        StarHub Limited is proposing to acquire 50.1% interest in MyRepublic’s Singapore broadband business for an acquisition consideration of SGD 70.8m. Last Wednesday, StarHub informed that it will be extending a SGD 74.2m loan to MyRepublic Holdings Ltd for a period of three years, that may be extended for an additional two years. The SGD 105m Bridging loan due from shall be fully repaid through this proposed transaction and loan extension to MyRepublic Holdings Ltd.    

·        Fragrance Group Limited announced on Thursday that its shares have been suspended for trading for a continuous period of seven days as of 21 Sep 2021. Its FRAG 4.750% 23Nov2021 Corp (SGD) bonds has a cessation put and the company will issue a formal notice within seven days after the effective date.

·        Last Thursday, Frasers Property Limited announced that a further SGD 67.7m out of the gross proceeds of SGD 1.16b raised from the rights issue has been utilised as follows:

(i)     approximately AUD 3.3m (approximately SGD3.2m) towards the payment of the purchase price for the acquisition of approximately ten hectares of industrial land located in Kemps Creek East, New South Wales, Australia;

(ii)    approximately AUD 12.8m (approximately SGD12.5m) towards the payment of the purchase price for the acquisitions of an aggregate of approximately four hectares of industrial land located in Horsley Park, New South Wales, Australia;

(iii)  approximately AUD 52.9m (approximately SGD51.9m) disbursed to an indirect subsidiary of the Company to fund the capital and development expenditure of industrial and logistics assets; and

(iv)  approximately SGD 0.1m for expenses incurred in connection with the Rights Issue.

This morning, Frasers Property re-opened its FPLSP 3.000% 09Oct2028 Corp (SGD) at an opening price of 100. New subscriptions will be capped at SGD 100m and newly issued bonds will be immediately fungible with initial notes.  

Last Thursday, Singapore Telecommunications Limited updated that it will be subscribing to Bharti Airtel’s rights at an issue price of INR 535 per share for a total consideration of INR 29.4b (~USD 405m). Shareholders are entitled to 1 equity share rights for every 14 equity shares on the Record Date. Bharti Airtel is looking to raise approximately Rs 21,000 crores from this rights issuance. Our podcast series, Yield Hunters, is available on Spotify, iTunes Podcasts and Google Podcasts. We share our thoughts on new bond issues and hold discussions on the fixed income space. Listen to our latest episode below and follow us!