Asia Inc perpetual bonds have bumper year as Softbank joins ranks

Golden Agri-Resources

19/07/2017 05:46

* Perpetual bond issues in 2017 top previous peak in 2014 
    * Investors seek yield, corporates want steady income 
    * Softbank issues largest-ever junk perpetual bond deal 
 
    By Umesh Desai 
    HONG KONG, July 19 (Reuters) - Asia Inc's scramble to lock 
in low interest rates and investors' thirst for a steady stream 
of income have boosted perpetual bond issuance in the region to 
a record this year, led by a clutch of jumbo deals from 
ChemChina to Japan's SoftBank  9984.T .  
    Asian corporates outside Japan issued $18.2 billion of 
perpetual bonds so far this year, compared with $16.7 billion 
for all of last year and 2014's record of $17.95 billion. 
    The bond market boom looks set to continue as more 
companies, including Malaysian oil services company Yinson 
Holdings  YINS.KL  and Singaporean healthcare provider Parkway 
Pantai, wait in the wings to take advantage of investor demand 
for yield and a narrowing price gap with senior debt. 
    "We believe that the current low interest market conditions 
increase the opportunity for prospective issuers to lock in 
their funding, including through perpetual bonds," said Richard 
Fung at palm oil company Golden Agri-Resources Ltd  GAGR.SI .    
    Golden Agri has tapped a variety of sources for funding its 
business but has yet to issue perpetual bonds. 
    A perpetual bond has no maturity date and issuers pay a 
coupon forever, though they do not have to redeem the principal. 
Some have features which address the concerns of investors who 
do not want to hold unlimited maturity bonds. These include 
issuers' right to redeem the bonds on a fixed date and step-up 
features requiring them to pay a higher coupon if the call is 
not exercised - both incentives for a fixed date redemption. 
    In accounting terms, the bonds are classified as equity - an 
attractive prospect for Asia's more indebted companies. 
    SoftBank raised $4.5 billion last week in the largest-ever 
junk perpetual bond deal. The telecoms and tech giant is both 
rare as a junk-rated, as well as, Japanese issuer. Investors 
swarmed into the deals - SoftBank attracted orders of $11.7 
billion and ChemChina's orderbook was more than $5 billion.  
    Other jumbo deals included China Zheshang Bank's  2016.HK  
$2.175 billion transaction and Cheung Kong Property's  1113.HK  
$1.5 billion offering, both enjoying healthy oversubscriptions. 
    Softbank's 6 percent notes, callable after six years, and 
the 6.875 percent notes, callable after 10 years, are treated as 
equity under IFRS accounting standard and are treated as 50 
percent equity by ratings agency S&P - a source of comfort for 
current debt holders. 
    As a result of the bond's treatment as equity, the offering 
will leave Softbank's 14 trillion ($126 billion) debt pile 
unchanged for accounting purposes. 
    "We would have to expect that some bondholders were 
beginning to get uncomfortable with having a large amount of 
debt in line or ahead of them in the capital structure," 
CreditSights analyst Jay Mayers said. 
    "By issuing these perpetuals, bondholders are reassured by 
more cash on the balance sheet to work with and a debt raise 
without significant threat of a ratings downgrade on their 
holdings." 
    Many of the issuers are using perpetual bonds to finance 
acquisitions, or long-dated assets. 
    Chinese state-owned chemicals conglomerate ChemChina raised 
$20 billion in perpetual bonds and preferred shares in May to 
finance its acquisition of Swiss seeds maker Syngenta. 
 urn:newsml:reuters.com:*:nL4N1IR22A 
    Last month, Singaporean telecoms service provider StarHub 
Ltd  STAR.SI  sold perpetual bonds in a S$200 million ($146.30 
million) issue that attracted S$1.5 billion in orders.  
    "Despite our low leverage and strong balance sheet, we have 
opted for this route because the market conditions are robust 
and healthy for these instruments," said Dennis Chia, chief 
financial officer StarHub. 
    As for most issuers, Starhub's perpetual bonds are 
equivalent to cheap equity rather than expensive debt. 
    The 3.95 percent coupon on the StarHub bond is higher than 
any of the coupons the company is paying on its existing bonds - 
which is a big draw for retail investors who accounted for 47 
percent of the orders.  
    At the same time it is lower than the 6.9 percent dividend 
yield the shares are returning. 
    "Demand for yield product is so strong in Asia that issuers 
are testing out new structures, and increasingly ones which are 
strongly in the issuers' favour," said Dhiraj Bajaj, 
Singapore-based fund manager at Lombard Odier. 
    In contrast to fixed maturity bonds, perpetual bond 
offerings in Asia are dominated by retail investors - another 
lure for corporate borrowers. 
    "This differing investor base tend to be sticky, buy and 
hold investors," said Jamie Tadelis, Hong Kong based co-head of 
sales at SC Lowy. 
    ($1 = 1.3671 Singapore dollars) 
 
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
Record issuance of perpetual bonds in Asia    http://reut.rs/2tAiPwx 
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> 
 (Editing by Jacqueline Wong) 
 ((umesh.desai@thomsonreuters.com; +852-2843-6935; Reuters 
Messaging: umesh.desai.thomsonreuters.com@reuters.net; Twitter 
@umesh_desai)) 
 
Keywords: ASIA PERPETUALS/