Bond Market Monitor: Bank of England pulls off shocker

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Important Events

·        Last Thursday, the Federal Reserve (“Fed”) kept the target range for the federal funds rate at 0-0.25% and decided to begin reducing the monthly pace of its net asset purchases by USD 10b for Treasury securities and USD 5b for agency mortgage-backed securities. The Committee judges that similar reductions in the pace of net asset purchases will likely be appropriate each month, but it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook.

Chairman Jerome Powell continued to re-emphasise that tapering does not mean the Fed will hike rates any time soon as they wish to see the labour market continue healing. The Fed also expects supply constraints to ease which will support continued gains in economic activity.

·        The Bank of England unexpectedly held rates at 0.1% after many committee members talked about raising rates. This surprise can be seen through financial markets where the GBPUSD depreciated by 1.32% and yields of 10-year UK Gilts fell by 23 basis points (“bps”) to 0.8451%.

Global and UK GDP increased in 3Q21 but at a slower pace than projected in the Bank’s August Report as growth was restrained by disruption in supply chains. The Bank also forecasts UK GDP to return to 4Q19 level in 1Q22. They also expect inflation to rise to about 5% in the spring next year but only temporarily.

Asian High Yield Bond Index

·        The Barclays USD Asia High Yield Bond Index had a losing week yet again, falling by 2.63% for the week ending 5 Nov 2021.

·        Kaisa Group missed payments on one of its wealth management products and is putting up 18 projects in Shenzhen for sale, estimated to be worth about RMB 82b (~USD 13b).

·        Bonds of China Aoyuan Group fell heavily with the CAPG 8.500% 23Jan2022 Corp (USD) dropping by 45.54% to 36.62 cents. The company is considering selling its stake in Aoyuan Healthy Life Group Co. to ease its liquidity pressure. Moody’s downgraded its credit rating from ‘B1’ to ‘B2’ respectively.

·        Longer-dated Zhenro Properties Group bonds fell heavily even as the group continues to repurchase its short-term notes. ZHPRHK 7.350% 05Feb2025 Corp (USD) fell by 39.5% last week to 45.47 cents.

Interest Rates and Currencies

·        The US dollar appreciated by just 0.1% against the SGD despite the deluge of news last week. The 2-year SGD Swap Offer Rate (“SOR”) decreased by 10.1bps to 0.7588% and the 10-year SGD SOR decreased by 8bps to 1.8175%. The 5-year SOR and 5-year SORA-OIS dropped by 4.3bps and 4.0bps to 1.0125% and 0.9200% respectively.

·        The yields of the 2-year US Treasuries (“UST”) and 10-year UST decreased by 9.6bps and 10.1bps to 0.4008% and 1.4513% respectively after Fed Chairman Powell’s dovish comments at the press conference.

Corporate Updates and New Issues

·        Last Monday, Hatten Land Limited announced its wholly-owned subsidiary Hatten Technology (S) Pte Ltd (“HTPL”) entered into a joint venture agreement with HydraX Pte. Ltd. to incorporate a joint venture company (“JVC”) to establish and operate a digital token exchange in Singapore and Malaysia.

HTPL will hold 60% of the shares in the JVC and Hydra X will hold the remaining 40% of the shares. Hydra X will be issued shares of Hatten Land of an aggregate value of USD 400,000 as partial consideration for the services to be rendered by Hydra X. Hatten Land will issue 8,989,333 new ordinary shares at an issue price of SGD 0.06 for each share to Hydra X as payment.

Hatten Land is also working with partners to install solar panels on rooftops of the malls and potentially build large-scale solar photovoltaic facilities which will enable environmentally-friendly cryptocurrency mining. The digital assets derived from these new initiatives may be listed or traded on the Crypto Exchanges.

In addition, Hatten Land informed that it will issue 20,000,000 new shares at an issue price of SGD 0.06 to Golden Summit International Ltd – a investment holding company majority owned by Mr Thomas Chan Ho Lam. The company will use the net proceeds from this placement for working capital and to fund new business initiatives.

On Wednesday, the company notified that a winding up petition for the sum of MYR 1,380,307.01 has been brought against Gold Mart Sdn. Bhd. An appeal has been filed but a hearing for the appeal has not been decided as of 3 Nov 2021.

·        Ascott Residence Trust (“ART”) announced on Monday that its wholly owned subsidiary has entered into a conditional sale and purchase agreement to acquire a student accommodation property located at 707 South Fourth Street, Champaign, Illinois 61820, U.S. for a purchase consideration of USD 83.25m (~SGD112.4m). The purchase consideration will be fully paid in cash and will be funded by debt and part of the proceeds from ART’s private placement launched in September 2021. The yield-accretive acquisition is set to increase ART’s pro forma FY20 distribution by approximately 1.2%. The entry EBITDA yield is expected to be about 4.5% and is expected to rise to about 4.8% on strong rental growth for Academic Year 2022.

·        Ascendas REIT issued HKD 950m 2.63% notes due 2031 on Monday. The notes were issued under the SGD 7b Euro Medium Term Securities Programme on 1 Nov 2021. The notes have been assigned a rating of ‘A3’ by Moody’s.

·        On Monday, Singapore Press Holdings announced that the Board has decided not to proceed with the Consent Solicitation for the SPHSP 3.200% 22Jan2030 Corp (SGD) in view of the proposal by Cuscaden Peak Pte. Ltd. to acquire all of the issued ordinary shares of the company. Consequently, the investor call that was scheduled to take place on 3 Nov 2021 had been cancelled.

·        Oxley Holdings Limited announced on Monday that Ballymore Deanston Limited, a 50% joint venture of the group had sold 207 units in the Riverscape development to Legal & General Affordable Homes (Development 2) Limited. The purchase consideration for the transaction is GBP 50.5m. Ballymore Deanston is projected to receive GBP 15.15m on practical completion of Golden Brick Works in the fourth quarter of 2021.

·        Last Tuesday, DBS announced it will invest SGD 300m next year to grow the breadth and depth of its digital and Intelligent Banking capabilities powering all products and solutions for wealth and retail customers. This will also further bolster hyper-personalised experiences across the bank’s digital and physical touchpoints.

·        CapitaLand Investment Limited (“CLI”) announced on Wednesday that it has established two private funds in Japan and South Korea to grow its funds undermanagement by SGD 688m. The private fund in Japan has acquired CLI’s interest in two existing commercial assets. In a deal secured by CLI, the private fund in South Korea has acquired two operating cold storage logistics properties that are on long-term master leases with Foodist, a nationwide food wholesaler, thus generating stable fee-related income immediately. CLI has also invested alongside its capital partners, obtaining a minority stake in both funds.

·        Last Wednesday, ESR Cayman Limited announced that the proposed ARA acquisition was approved by the shareholders. ESR-REIT will also update on their merger with ARA LOGOS Logistics Trust in the future.

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