Singapore Airlines (SIA)
Asked on 20 Mar 2019
Interested to hear the community here thought’s on retail bonds in Singapore because it’s so rare.
Great, I've just posted a similar question few minutes ago.
Firstly lets layout what it is all about:
Initial issue: $300 mil* (retail)
Minimum denomination: $1,000
Holding period: 5 years (2024)
Interest: 3.03% p.a (semi-annually- 28 Mar & 28 Sep)
Application date: 20th Mar 19 - 26th Mar 19 (12pm)
Application through: DBS, UOB, OCBC ATM / ibanking -with CDP account
Ballot outcome: 28 Mar 19
SGX Listing: 29 Mar 19
No credit rating
Temasek holds about 55.5% of SIA shares
Last SIA bond offering: 2010, 2.15% p.a, Min. $10,000, oversubscribed
I saw this really good analysis by Investment Moats: Kyith
I will personally pass as well after reading the analysis.. I would rather take a safer bet at 2-3% with SSBs.
SIA will be releasing $500 mil worth of bonds, with the public being allocated $300 mil out of this and the rest going to institutional investors. Should the bond be oversubscribed, they will expand it up to $750 mil.
What you need to do is to access the ability for SIA to pay the interest on their debts.
The yield is hardly exciting and perhaps a reflection of the credit worthiness of the issuer. This yield is slightly higher than last year’s hot Temasek 5 year 2.70% bond.
For reference, the yield on the 10 year SGS bond is 2.10% and the 5 year SGS bond is around 1.99%.
The net debt to asset also showed that in the past 10 years, SIA have been in net cash position (cash more than debt). However, this has been deteriorating. SIA is now in net debt position.
However, the level of debt is still very very low.
Their financial position looks strong enough to pay the coupon payment. (If you want to compare this to Hyflux’s historical financial strength prior to their perpetual issue, you can take a look at this analysis that I did not long ago)
You can read the full analysis here: http://investmentmoats.com/money/singapore-airlines-sia-5-year-3-03-retail-bond/
You can find my In-depth views here.
Airline Industry Challenged
Balance sheet and financials deteriorating but still support the debt
3.03% may or may not be sufficient to compensate you for taking the risk
Not perfect but still invest-able
Go in with your 2 eyes open should you decide to invest
If I was looking to rebalance my portfolio towards bonds, I would definitely suscribe to this bond given its at a 0.3% premium to the massively suscribed Temasek 5 year bonds- as mentioned by Kenneth.
I believe this bond cannot come at a more opportune time than after the Hyflux Fiasco. WIth local investors reeling in from their Hyflux losses; From a Behavioural Finance point of view, as the psychology of investors is to now invest more cautiously, SIA is now incentivised to offer a greater interest premium to attract sufficient take-up rate for its bonds.
While we have all learnt we cannot assume SG government's to rescue a company with its implict "stamp of approval", SIA is a 11.5B Market Cap company with solid fundamentals and stable cashflow generating model.
I believe you stand to gain the most when you think like a contrarian in rational situations as such.