Temasek hires three banks for its first bond since 2005

October 19, 2009
Singapore Democrats

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Shelley Smith & Katrina Nicholas

Temasek Holdings Pte, Singapore’s government-owned investment company, hired Deutsche Bank AG, Goldman Sachs Group Inc. and Morgan Stanley to help issue its first bonds in four years.

The sale of 10-year dollar notes will be benchmark in size, Temasek said in a filing today, using a term that typically means at least $500 million. The bonds may be priced to yield about 100 basis points more than similar-maturity Treasuries, said a person familiar with the matter, who asked not to be identified as they’re not authorized to discuss it.

“Temasek is triple A rated and there aren’t many triple A bonds around in Asia so it’s rare,” said Tan Wah Yong, who helps manage $4.4 billion of Asian fixed-income assets at Aberdeen Asset Management Asia Ltd. in Singapore. A spread of about 100 basis points would be “fair” and Aberdeen may buy the notes, she said.

Temasek, which reported a 66 percent drop in profit to S$6.2 billion ($4.45 billion) for the year to March 31 after selling stakes in Bank of America Corp. and Barclays Plc, has slowed investments after losing money on financial companies. 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 “methodically” over the last two years because of the risk of a slump, though it didn’t anticipate “the speed and ferocity of the worst global financial crisis since the Great Depression.”

The company said in August that it plans to work with companies in which it has stakes, the first change to its charter in seven years, reflecting a transformation from a passive owner of stakes in government-controlled companies to an investor with more than two-thirds of its assets outside Singapore.

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 94 basis points over Treasuries, according to Royal Bank of Scotland Group Plc prices on Bloomberg. A basis point is 0.01 percentage point.

The spread on the 2005 notes is “a real-time indicator of credit risks, much like the role of a singing canary in a coal mine,” Ho said July 29.

The new securities will be issued under Temasek’s $5 billion guaranteed global medium-term note program, today’s statement said. Temasek spokesman Jeffrey Fang declined to comment beyond the statement.

Market volatility

“We’re not expecting any major acquisitions but obviously that’s what this company is all about,” Standard & Poor’s credit analyst Manuel Guerena said in a phone interview from Singapore. “These bonds will help extend Temasek’s debt maturity profile, and I guess it’s a bit of a signal to the market that the volatility in equity markets over the past year or so hasn’t affected Temasek’s financial rating.”

Moody’s Investors Service ranks Temasek’s bonds at Aaa, its highest investment-grade rating. S&P grades the debt an equivalent AAA.

Top-rated Singapore Technologies Engineering Ltd., Asia’s biggest aircraft maintenance company, sold $500 million of 10- year bonds in July that were priced to yield 150 basis points more than similar-maturity Treasuries, Bloomberg data show. PSA International Pte, the ports operator owned by Temasek, sold $500 million of bonds due 2019 in September that were priced at a 140 basis point spread, the data show.

“The strength of Temasek comes from its very strong liquidity and also its portfolio, which is quite diversified and also quite liquid,” S&P’s Guerena said. “Many of its investments also have strong business profiles and provide the company with a nice amount of cash flow.”