Singapore girl makes bond comeback as city booms

by **Cals** Fri 28 Mar 2014, 19:13

Business & Markets 2014

Written by Bloomberg

Friday, 28 March 2014 13:10

(Mar 28): Singapore Airlines Ltd. sold its first bond in more than three years as an outperforming economy drives the city’s busiest debt sales in six quarters.

Southeast Asia’s biggest carrier, whose iconic Singapore Girl travels the globe inspecting items served to flyers in a new advertising campaign, raised S$500 million ($396 million) selling seven- and 10-year notes priced to yield 3.145 percent and 3.75 percent respectively. Singapore dollar-denominated offerings rose 24 percent from the final three months of 2013 to S$6.4 billion. Local-currency note sales in the Asean region slid 23 percent to $16.1 billion.

A pickup in manufacturing and growth of 3.8 percent this year, faster than Hong Kong, South Korea and Thailand, is giving companies the confidence to expand and take on more debt. Las Vegas Sands Corp. Chairman Sheldon Adelson wants more land for his casino resort, while Mohamed Mustafa & Samsudin Co., operator of a 24-hour department store in Singapore’s Little India, sold a debut note in the island’s currency.

“Optimism in Singapore as a whole is giving borrowers the confidence to sell bonds,” said Clifford Lee, the Singapore- based head of fixed income at DBS Group Holdings Ltd., the top arranger of Singapore-dollar notes for the last five years running. “The country has always had a resilient, open and stable market but what distracted companies previously was the attraction of dollar bonds.”

Borrowing Costs

Offerings in Singapore dollars fell 36 percent to S$19.8 billion last year from 2012 while U.S. dollar issuance in Asia outside Japan touched a record $126.6 billion. Local-currency yields in the Lion City average 2.52 percent after spiking to 2.75 percent in September, the highest since November 2008, as fears Federal Reserve tapering may limit the appeal of regional Asian economies infected markets.

Notes in the city-state’s currency have returned 1.11 percent this year compared with 1.04 percent for local-currency bonds in Malaysia, 1.89 percent for baht notes in Thailand and a loss of 1.03 percent for securities in the Philippines, HSBC Holdings Plc indexes show. The Singapore dollar has gained 0.13 percent this year, even as the Chinese yuan slumped 2.6 percent.

Singapore Girl

Singapore Airlines, founded in 1972, has a route network spanning six continents, according to its website. It was the first airline to offer free headsets and drinks in economy class in the 1970s and the first to fly an Airbus A380, from Singapore to Sydney, in October 2007.

It sold bonds this week “while the interest rate environment is relatively favorable,” according to spokesman Nicholas Ionides. “Funds will be used for general corporate and operational purposes,” he said. “We went with Singapore dollars given our functional currency is Singapore dollars, which makes it more cost effective for us to tap that market.”

U.S. dollar borrowing costs for Singaporean companies average 4.04 percent, down from 4.31 percent at the start of the quarter, JPMorgan Chase & Co. indexes show.

Manufacturing output in Singapore increased 12.8 percent in February from a year ago, the fastest pace of expansion since December 2011, Economic Development Board data show. Exports are expected to rise 1 to 3 percent in 2014, the trade promotion agency said last month, amid raised projections for global growth by the International Monetary Fund.

Ringing Tills

Shoppers’ willingness to spend will also increase as price rises cool, according to Bloomberg Industries analysts. Food inflation fell to a seven-month low 2.3 percent in February from 3 percent in January. The slowdown, which ended a four-month run of accelerating price increases, may boost sales of premium- priced branded food and beverages, they said in a March 25 note.

Aspial Corp., which runs a chain of jewelry stores, sold S$80 million of three-year 4.5 percent notes in January, just six months after its previous bond transaction. Mohamed Mustafa & Samsudin, which runs the Mustafa store, raised S$75 million selling similar-maturity notes at 4.75 percent, the first time its tapped debt capital markets.

Investors in Singapore bought about 90 percent of Singapore Airlines’ bonds, according to a person familiar with the matter who asked not to be identified because the details are private.

The carrier plans to start a joint-venture airline with the Tata Group in the second half of this year to service a surge in demand for air travel in India, the world’s second-most populous nation.

Banking Hub

It posted a 65 percent decline in profit to S$50.1 million for the three months ended Dec. 31 as losses from associated companies such as budget airline Tiger Airways Holdings Ltd. crimped earnings. Passenger numbers for the period increased 2.1 percent to 4.78 million and the carrier packed 79.4 percent of available seats.

As well as establishing itself as a transport hub for flights to Europe and beyond, Singapore has also become home to a swathe of private banks and hedge funds. It overtook Japan as the biggest foreign-exchange center last year and Indonesia’s PT Bank Mandiri opened its first branch in the city this week.

Expansion of the island’s private banking industry, and the presence of regional offices of global companies, has drawn more top talent, with senior executives in Singapore now earning more than in Hong Kong, human resources consultancy firm Towers Watson & Co. said in a February report.

Foreign Banks

The nation’s bond market is also seeing an increasing number of foreign banks jostle for arranger roles. Melbourne- based Australia & New Zealand Banking Group Ltd. has helped to arrange 9.8 percent of sales this quarter, ranking no. 3 for the first time since the final three months of 2011, Bloomberg- compiled data show. London’s Standard Chartered Plc ranks second, helping to arrange 19.3 percent of transactions, behind DBS at 29.4 percent.

ANZ, Australia’s third-biggest lender, said strong banking relationships with key Singaporean clients, developed over the past few years, are “bearing fruit,” according to Vishnu Shahaney, the bank’s Singapore chief executive.

Singapore “is business-friendly and pragmatic in its approach,” Shahaney said. “It embodies safety and has an incredible talent pool of finance professionals. Decision makers are approachable and open, and are able to react to world market developments very effectively.”