Bond Market Monitor: MAS tightens monetary policy

Important Events

·        Last Wednesday, the Federal Reserve (“Fed”) released their minutes for the September meeting. The minutes stated that the Fed is most likely to taper their asset purchases soon as most members observed that “substantial further progress” has been met for the Committee’s goal of maximum employment and price stability. Some members also suggested that labour supply constraints were impeding further improvements in labour market conditions, which accommodative monetary policy will not solve. Tapering will likely begin in mid-November or mid-December and end around mid-2022.

·        On Thursday, the Monetary Authority of Singapore (“MAS”) unexpectedly tightened monetary policy, increasing the slope of its currency band slightly from 0% previously. The central bank expects core inflation to rise steadily from below 1% on average this year to 1-2% in 2022. They also expect a broad-based pick-up in inflation due to higher commodity prices and firm wage growth.

·        Over the weekend, Bank of England (“BoE”) Governor Andrew Bailey spoke to an online panel, saying that BoE will have to act to curb inflationary forces to prevent higher inflation expectations from becoming entrenched. However, he still believes the recent spike in inflation will be temporary.

Asian High Yield Bond Index

·        The Bloomberg Barclays USD Asian High Yield Bond Index fell by 1.85% for the week ending 15 Oct 2021.

·        Several Chinese real estate companies continued to see their bond prices drop, with Kaisa Group Holdings Ltd. bonds dropping by about 20% last week. Some other names whose bonds saw losses of 10% and more include Yuzhou Group, China Aoyuan Group and China South City Holding.

·        On Monday, Modern Land reported that Mr. Zhang Lei, the chairman and controlling shareholder of the company, and Mr. Zhang Peng, the president of the company, intend to provide the company with shareholder’s loans of around RMB 800m. It is expected to be completed within the next two to three months.

·        On Tuesday, Central China Real Estate reported that the Group repurchased part of its USD bond due on November 2021 in an aggregate principal amount of USD 14.3m, representing 3.6% of the initial aggregate principal amount.

·        On Thursday, Yincheng International reported that the Group repurchased part of its USD bond due on November 2021 in an aggregate principal amount of USD 65m, representing 32.5% of the initial aggregate principal amount.

Interest Rates and Currencies

·        The US dollar depreciated by 0.5% against the SGD last week. The 2-year SGD Swap Offer Rate (“SOR”) increased by 6.5 basis points (“bps”) to 0.6350% and the 10-year SGD SOR decreased by 6bps to 1.7725%.

·        The yields of the 2-year US Treasuries (“UST”) increased by 7.7bps to 0.3949% and the 10-year UST declined by 4.2bps to 1.5703% last week.

Corporate Updates and New Issues

·        Last Tuesday, Starhill Global REIT announced they have entered into a facility agreement with RHB Bank Berhad for a 3-year unsecured and committed revolving credit facility of SGD 50m. The credit facility will commence from 1 Jan 2022 and replace the existing SGD 50m credit facility expiring in April 2022.

·        The Ascott Limited (“Ascott”) announced on Tuesday that they have formed a strategic partnership with Sun Group, one of the biggest real estate developers in Vietnam, to manage Vietnam’s largest serviced residence integrated development. Ascott will manage 1,905 units across three distinct serviced residence brands within Sun Group’s Tay Ho View Complex in Hanoi. The three brands are – The Crest Collection brand, Ascott The Residence Brand, and Citadines Apart’hotel. The three serviced residences are expected to open in phases from 1Q23. Ascott The Residence will offer 1,167 units comprising suites, studio, one- to four-bedroom apartments and duplex units, while Citadines Apart’hotel will offer 710 units comprising studio, one- to four-bedroom apartments and duplex units. The Crest Collection will offer 28 exclusive units, comprising three- and four-bedroom duplex apartments.

·        Last Tuesday, CapitaLand China Trust (“CLCT”) announced they have entered into:

(i) three conditional share purchase agreements with QR Asia Logistics Master Holdco I Pte. Ltd. (“Vendor I”) to acquire all the issued shares of Wuhan Logistics Pte. Ltd. (“Wuhan Logistics”), ABM KS Investment Pte. Ltd. (“ABM KSI”) and Forum Court Limited (”Forum Court”); and

(ii) a conditional share purchase agreement with QR Asia Logistics Master Holdco II Pte. Ltd. (“Vendor II””) to acquire all the issued shares of Hanson Logistics Limited (“Hanson Logistics”).

The aggregate purchase consideration comprises the equity consideration based on the adjusted aggregated net asset value (“NAV”) of the companies and shareholder loan consideration amount based on the outstanding total amount of existing shareholder loans owed by the companies to the vendors. This amount will be paid to the vendors for novation to the trustee of the existing shareholder loans extended to the companies. The estimated purchase consideration payable is about USD 216.8m (~SGD 291.6m) and will be paid by cash. The total cost is about SGD 297.7m after including fees. It will be financed by proceeds from a private placement of about SGD 120m and the rest by debt.

If the acquisitions were to be completed on 1 Jan 2020, the pro forma financial effect on net income is an increase of 12.8% to SGD 152.56m for FY2020. Gearing ratio will increase by 2.3 percentage points to 38.2%.

·        Ezion Holdings Limited (“Ezion”) announced on Tuesday that the conversion price of the Series B Convertible Bonds and the Amended Series 008 Securities have been reset to the Series B minimum conversion price of SGD 0.2763, in accordance with their respective terms and conditions. The conversion price will be applicable from 13 Oct 2021 to 12 Apr 2022, after which the conversion price will be reset again.

On Friday, Ezion also announced that Atlantic London Pte Ltd (“ALPL”), the company’s wholly-owned subsidiary, has been placed under creditors’ voluntary winding-up with effect from 15 Oct 2021. The creditors’ voluntary winding-up of ALPL is not expected to have any material impact on the net tangible assets or earnings per share of the Group for the financial year ending 31 December 2021.

·        Last Tuesday, Pacific Radiance announced that Pacific Crest Pte. Ltd. (“PCPL”) and CSI Offshore Pte. Ltd. (“CSIO”) filed applications to the Court on 5 Oct 2021 seeking liberty to convene meetings of their respective scheme creditors to consider and approve with or without modification the schemes of arrangement proposed to be made between each of PCPL and CSIO and their respective scheme creditors. The applications will be heard on 29 Oct 2021 at 1430h.

·        Tuan Sing Holdings Limited announced on Thursday that it has purchased SGD 40m of its TSHSP 7.750% 19May2022 Corp (SGD). The outstanding amount of the notes stands at SGD 25m.

Tuan Sing also announced a 3-year bond but non-callable for the first two years at a final price guidance of 6.90% last Monday. It is callable at 102 at any time after 18 Oct 2023 with a final issue size of SGD 200m.

·        On Thursday, M1 signed agreements for a proposed investment by Keppel DC REIT into M1 Network Private Limited (“NetCo”), a newly incorporated company, which will own M1’s mobile, fixed and fibre assets (“Network Assets”). Through an asset transfer agreement between M1 and NetCo, NetCo will acquire the Network Assets at a cash consideration of approximately SGD 580m, or the net book value of the Network Assets.

NetCo will fund the acquisition through external financing of up to SGD 493m and the issuance of SGD 88.7m of bonds to be subscribed by Keppel DC REIT or its wholly owned subsidiaries and the issuance of SGD 1.0m preference shares to Keppel DC REIT’s subsidiary, KDCR Singapore 2 Pte. Ltd.. In return, Keppel DC REIT will receive SGD 11.0m (comprising both principal and interest) each year for 15 years. M1 and Keppel DC REIT will have equal representation on the Board of NetCo.

·        On Friday, ESR-REIT and ARA LOGOS Logistics Trust (“ALOG”) jointly announced the proposed merger of the two trusts to create ESR-LOGOCS REIT (“E-LOG”). E-LOG will hold a diversified portfolio of logistics/warehouse, high-specifications industrial properties, business parks and general industrial properties, totalling 87 portfolio properties and a net leasable area of 2.2m sqm. E-LOG is expected to be amongst the top 10 largest S-REITs by free float market capitalisation. The total assets will amount to SGD 5.4b and aggregate leverage based on pro-forma adjustments for FY2020 will be at 42.1%.

The transaction is conditional upon the completion of the merger of ESR Cayman Ltd and ARA Asset Management Ltd. to form ESR Group, and the approval of ESR-REIT and ALOG unitholders.

·        On Monday, AIMS APAC REIT updated that it has received the FIRB Approval for the proposed acquisition of a 100% freehold interest in the property located at 1 Woolworths Way, Bella Vista, New South Wales 2153, Australia for the purchase price of approximately AUD 463.25m (approximately SGD 454.0m).