Spread narrows on Temasek’s first bonds in four years

October 20, 2009
Singapore Democrats

This post is at least a year old. Some of the links in this post may no longer work correctly.

Shelley Smith & Katrina Nicholas

The yield spread on Temasek Holdings Pte’s first new bonds for four years narrowed after the $1.5 billion sale was buoyed by investor demand for assets perceived to be lower risk.


The Singapore state-owned investment company sold 10-year, 4.3 percent notes with help from Deutsche Bank AG, Goldman Sachs Group Inc. and Morgan Stanley that were priced to yield 95 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. The spread narrowed to 91 basis points as of 3:30 p.m. in Singapore, Deutsche Bank prices show.

“It’s a triple-A credit and so anyone looking for a less risky asset would be interested in it,” Prashant Pandey, a credit trader for BNP Paribas SA, said in phone interview from Hong Kong. “In terms of upside, I don’t see very much because if you compare it to Singapore Technologies Engineering and PSA, which again are triple-A papers from Singapore, they are higher over Treasuries.”

Temasek, which had assets of S$172 billion ($124 billion) as of July 31, has top investment-grade ratings from Moody’s Investors Service and Standard & Poor’s. Temasek-backed ports operator PSA International Pte. and Singapore Technologies Engineering Ltd. were the only other triple-A rated Asian companies to sell dollar bonds this year as debt markets reopened in the wake of Lehman Brothers Holdings Inc.’s collapse, Bloomberg data show.

Dollar bonds

Singapore Technologies, Asia’s biggest aircraft maintenance company, sold $500 million of 10-year notes in July priced to yield 150 basis points more than Treasuries before PSA sold $500 million of bonds due 2019 last month priced at a 140 basis point spread, the data show.

The yield premium on Singapore Technologies’ notes narrowed to 114 basis points today while PSA’s were quoted at 113 basis points, according to Royal Bank of Scotland Group Plc. A basis point is 0.01 percentage point.

Temasek got $4 billion of orders for its bonds after the securities were marketed to investors at a spread of about 100 basis points, according to a person familiar with the transaction, who declined to be identified because they’re not authorized to discuss it. Some 62 percent of allocated offers came from U.S. investors, the person said.

Relative value

“We were going to participate but they tightened in too far,” said Tony Adams, who helps manage A$60 billion ($56 billion) as co-head of global fixed-interest and credit at Colonial First State in Sydney. “At the initial price talk the risk/return looked attractive. At 95 we decided it probably wasn’t paying us enough compared to alternatives.”

Microsoft Corp. of Redmond, Washington, which like Temasek has top credit ratings from Moody’s and S&P, has 4.2 percent notes due 2019 that were last quoted at 63 basis points over Treasuries, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Johnson & Johnson’s $900 million in 5.15 percent notes due 2018 last traded at a 51 basis point spread, Trace data show. J&J, based in New Brunswick, New Jersey, is the world’s largest healthcare products company.

“Asian credit markets are more illiquid than the U.S. and there’s always been a premium borrowers pay for this,” Brayan Lai, a credit analyst for Calyon in Hong Kong, said in a phone interview today. “Microsoft and Johnson & Johnson are stand- alone corporates in the true sense of the word while Temasek, even though it is marketed like a corporate, is really a quasi- sovereign. If I were to compare Temasek to other global triple-A credits I might pick some of the supranationals, such as the European Investment Bank.”


Ten-year dollar bonds sold in Feb. 2008 by the European Investment Bank are trading at a spread of 97.8 basis points over Treasuries while 10-year dollar notes sold by the Asian Development Bank in Sept. 2008 are trading at a 78.3 basis point spread, Bloomberg data show.

Temasek has slowed investments after losing money on financial companies. The company reported a 66 percent drop in profit to S$6.2 billion for the year to March 31 after selling stakes in Bank of America Corp. and Barclays Plc. It invested S$9 billion in the period, down from S$32 billion a year earlier, of which S$3 billion was in rights offerings by portfolio companies including London-based Standard Chartered Plc and Singapore’s DBS Group Holdings Ltd.

Liquidity buffer

Chief Executive Officer Ho Ching said on Sept. 17 that Temasek has been building up liquidity in the past two years because of the risk of a slump, though it didn’t anticipate the “speed and ferocity.” Temasek scrapped plans to appoint Charles “Chip” Goodyear as a replacement for Ho as CEO in July.

Temasek raised $1.75 billion from 4.5 percent, 10-year notes in September 2005 in its first-ever bond sale, according to data compiled by Bloomberg. The securities were last quoted at a yield spread of 92 basis points over Treasuries, according to RBS prices on Bloomberg.

The new bonds were issued through the company’s Temasek Financial I Ltd. unit, Bloomberg data show. Temasek spokesman Jeffrey Fang declined to comment beyond a company statement.

“We’re not expecting any major acquisitions but obviously that’s what this company is all about,” said S&P credit analyst Manuel Guerena. “These bonds will help extend Temasek’s debt maturity profile.”