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Local bond market's $22b refinancing bill

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Issuers, investors face refinancing risks due to higher borrowing costs in the US

Singapore dollar bonds worth $22 billion are callable or due to mature next year, exposing issuers and investors to refinancing risks as borrowing costs rise in the US, IFR reported.

The US Federal Reserve last Wednesday raised policy rates by 25 basis points (bp) and surprised markets with guidance for three rate increases next year. US Treasury yields jumped 10bp to 11bp across the curve, pulling Singapore dollar swap offer rates higher last Thursday morning.

The five- and 10-year Swap Offer Rate soared 10bp to 2.36 per cent and 2.87 per cent, 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 refinance, as the benchmark rate was only 1.34 per cent then.

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.

Indeed, Triple A-rated government agency Housing and Development Board accounts for $3.4 billion of next year's maturing bonds. Placing its bonds is usually not a problem, and it has sold $4.5 billion of notes this year alone.

Bankers also expect Genting Singapore to consider a new financing well ahead of next year's call dates on $2.3 billion of perpetual notes, although analysts stress the group is in no immediate need of cash. A $1.8 billion 5.125 per cent perp is callable on Sept 12, and a $500 million 5.125 per cent retail perp is callable on Oct 18.


The resort and casino operator, rated A3/A- (Moody's and Fitch), can expect healthy demand for a potential new issue, especially among institutional investors.

Bonds totalling $17.5 billion were issued to date this year, down 18.5 per cent from last year and the lowest since 2009. The last quarter has been particularly weak, with just $1.9 billion of notes sold.

Bank capital deals from both local and foreign banks are likely to remain a strong theme as Singapore investors have shown a strong appetite for riskier, high-yielding assets from high-rated banks.

Bankers are also hoping that foreign banks will consider selling non-preferred senior notes in Singapore to count towards their total loss-absorbing capacity ratios.

Restructuring of bonds of financially strapped issuers is expected to continue into next year, and those affected are likely to be mainly small- and medium-sized companies.

The market is watching a number of credits, including International Healthway Corporation (IHC), which lost its two prime Australian properties in September. It now faces a shareholder revolt over 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 $50 million 7 per cent due on April 27, 2017, and a $50 million 6 per cent due on Feb 6, 2018. - REUTERS