750m if there are mind-boggling response. The offer is manufactured under the seasoning construction. Temasek lobbied very difficult for this construction with the aim of making it easier for companies (like herself) to concern bonds to retail traders as the prospectus regime is more onerous for Issuers. Temasek launched its first retail connection last year and Singapore Airlines is another to do this. Hopefully, we can easily see better quality bond issuances coming up under this framework. However, traders must continue to be discerning as other low cost bonds such as Ezra or Swiber would potentially have certified as well. SIA intends to use the relationship proceeds to buy aircrafts.
Can SIA pay its bonds when it matures? I will not do it again the good work done by other fellow bloggers. Fast / Bondsupermart – If you wish to have a comprehensive overview on the bond. The Asia Report – If you want to know why you should avoid the relationship.
Side take note – Although Warren Buffet’s company do spend money on Airlines consequently after his devastating investment. I will share with you why i think SIA can pay its bonds and interest.. Company continues to be highly profitable and paying good dividends – Some bloggers expressed worried about the industry, the “net debt” position and the reduced Return on Equity. The very first thing you can certainly do to raise the ROE is to optimise the balance sheet. Having no personal debt on the total amount sheet is not “optimizing” it.
To make equity work harder, you ‘must’ have some leverage (not a lot till it can’t repay your debt), when interest expenditures are tax-deductible as well especially. Looking at the charts from the FY2018 annual report below, you will know that the Company continued to be profitable during the last 5 years (even although profits has fluctuated, the operating profit is increasing).
In addition, SIA has pay a lot of dividend to its major shareholder also, Temasek, over the same period (look at the dividend payout proportion). The dividend payout ratio finally decreased to 50% this past year. I would expect dividend payout percentage to maintain this range or lower in the years ahead given the net debt position.
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Fundsupermart has released a written report and put together the desk below. It would have been more beneficial if they also have included the issuance size in the table. Based on the table compiled, the bond maturing on 25 Oct 2023 is trading at YTM of 2.9% as the relationship maturing on 8 April 2024 is trading at YTM of 3.02%. Therefore, the existing relationship is rather valued. Let’s have a look at other rated bonds out there. Astrea IV is an Asset Back Security rated A by Fitch and SnP. The interest rate offered for the 5 year Class A-1 PE Bond was 4.35% with a potential bonus of 0.5% at release.
It last traded at 1.08. My article was here. The bonds was perfectly received. Similarly, Temasek launched its first retail 5 year bond that was rated AAA and offered 2.7%. The response from retail investors was overwhelming. My article was here. 100k without having to be cut back, unlike Astrea Temasek and IV Bonds.
Compared to the above mentioned IPOs, i would venture to state that Temasek and Astrea still left some money on the table for retail traders while SIA is more “stingy”. However, for the yield hungry retail traders here, who have limited investment options, most likely the SQ scraps are better than the poisonous Hyflux perps.
If you ask me whether i believe SIA will go belly up and default on the bonds over another 5 years, i’d say with a higher conviction that it wouldn’t. However, i am not drawn by the 3 too.03% coupon either when i compare against the rated bonds, SSB or even rates of interest in CPF special account. Capability to pay debt continues to be intact – The leverage (or gearing) ratio of SIA (computed as total debt over equity) has been rising over the last 8 years.