investor profile risks...as the pipeline for true high-yield sgd issuance dried up, we observed that...

BOND CLASSIFICATION INVESTOR PROFILE RISKS

StableIncome Seeker

Suitable for investors who want to take on some credit risk in exchange for higher yields

¡ As opposed to Sovereign bonds (or even quasi-sovereign bonds), credit risk is an issue – there is the risk that an issuer could default leading to an impairment on the bond investment

¡ Investors have to be mindful of interest rate risk, which can affect the performance of longer-maturity securities

¡ Investors can usually find a good mix of lower and higher-yielding names in the investment-grade corporate space, which can offer differing risk-reward profiles

High YieldSeeker

Suitable for investors who are looking for some of the strongest potential returns in the fixed income space, and are willing to accept a higher level of risk in their investments

¡ Default/credit risk is the main issue, given the lower-qual-ity nature of the issuers; for troubled companies, default may be avoided via a restructuring, which may see bond investors take a write-down on their investment

¡ Bond price volatility can be fairly high¡ Interest rate risk is less of an issue, since non-investment

grade corporate issuance is usually of a shorter maturity¡ A large amount of non-investment grade corporate issu-

ance tends to be in USD; investors who do not use the USD as a functional currency may be exposed to poten-tial currency risk

Disclaimer: No investment decision should be taken without first viewing a bond’s offering documents. Any advice herein is made on a general basis

and does not take into account the specific investment objectives of the specific person or group of persons. All contents herein do not constitute

financial advice or formal recommendation and must not be relied upon as such. We are not giving or purporting to give or representing or holding

ourselves out as giving personalised financial, investment, tax, legal and other professional advice.

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Market Review and Outlook

361 Degrees International Limited

Banyan Tree Holdings Limited

Breadtalk Group Limited

Cache Logistics Trust

CapitaLand Limited

Century Sunshine Group Holdings Limited

China Evergrande Group

City Developments Limited

DBS Group Holdings Ltd

China Eastern Airlines Corporation Limited

ESR Cayman Limited

ESR-REIT

Fraser and Neave, Limited

Fosun International Limited

Frasers Property Limited

FWD Group Limited

GuocoLand Limited

Golden Agri-Resources Limited

Heeton Holdings Limited

Hotel Properties Limited

HSBC Holdings PLC

Julius Baer Group Limited

Keppel Corporation Limited

Lippo Malls Indonesia Retail Trust

Logan Property Holdings Company Limited

Manulife Financial Corporation

Mapletree Commercial Trust

Mapletree Industrial Trust

Mapletree Logistics Trust

Mapletree North Asia Commercial Trust

Neptune Orient Lines Limited

OUE Limited

Oxley Holdings Limited

Perennial Real Estate Holdings Limited

Ping An Insurance (Group) Company of China, Limited

PT Ciputra Development Tbk

Ronshine China Holdings Limited

Sembcorp Industries Limited

Singapore Airlines Limited

Singapore Post Limited

Soilbuild Business Space REIT

StarHub Limited

Studio City International Holdings Limited

Trafigura Group Private Limited

Uber Technologies Inc.

UBS Group AG

United Engineers Limited

Wing Tai Holdings Limited

Wing Tai Properties Limited

Bonds under the “High Yield Seeker” investor profile category are suitable only for investors who are

willing to accept a higher level of risk in their investments.

Risks to be mindful of:

¡ Default/credit risk. This is the risk that the issuer may fail to make timely interest or principal payments and default on its

bond. Because high-yield bonds are typically issued by companies with weaker financial health, this risk is particularly im-

portant to consider for high-yield investors. Default may be avoided via a debt restructuring, which may see bond investors

take a write-down on their investment.

¡ In times of economic stress, defaults may spike, making the asset class more sensitive to the economic outlook than other

sectors of the bond market.

¡ Bond price volatility can be fairly high.

HIGH YIELD SEEKER

CONTENTS

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Market Review and Outlook

At the end of 2018, the world of finance seemed to be heading for a year of uncertainty and market volatility, with potential shocks coming

from various sources. As 2019 drew to an end, it became clear that the year did bring about plenty negative headlines and slowing global

growth. But investors who had stayed away from the market due to uncertainty would have lost out on the impressive returns across major

asset classes and markets (see Figure 1).

So it seems like we have had a strange year of strong financial market performance with disappointing economic growth and political

headwinds. We don’t think anyone has a definite answer as to what gave rise to this curious combination of exciting investment returns

and elevated global policy uncertainty. But if we had to take a guess, we would say it was due to two factors.

Firstly, as can be gleaned from Figure 1, investment markets were coming off the weak year of 2018, when investors spooked by escalations

in the US-China trade war and tightening monetary policy went into an extreme-fear mode. As market participants went into 2019 with an

abjectly pessimistic outlook on the things to come, the subsequent reality of weaker economic growth and corporate profits were unlikely

to surprise them, and the slightest reason for optimism could spur a rally in asset prices.

Second, and more importantly, after a brief attempt to return to monetary normalcy, major central banks have retreated back to using

their trusted tools of rate cuts and quantitative easing in 2019. Low interest rates, described by venerable investor Howard Marks as the

“dominant feature of the world of finance” over the past decade, look destined to continue to dictate the market narrative for the fore-

seeable future. When Federal Reserve Chairman Jerome Powell hinted on 10 July 2019 that a rate cut was about to happen, the market

promptly sent the S&P 500 index above the 3,000 level for the first time, which translated to a valuation that was expensive relative to

history. In their fervor for the prospect of monetary easing, investors had perhaps brushed aside other comments made by Powell in the

same statement, which explained the rationale for a dovish stance—for instance, “uncertainties about the outlook have increased in recent

months”, and “growth in business investment seems to have slowed notably”.

As risk sentiment and capital market conditions improved, new issue volume had picked up in 2019. Based on Bloomberg data, following

a significant dip in 2018, offshore Chinese bond issuance volume rebounded strongly in 2019, increasing roughly 31% in year-to-date 17

December 2019. In terms of the growth in bonds outstanding, the issuance volume of offshore Chinese bonds in 2019 was impressive but

not unusual.

Figure 1: Investment markets have performed strongly across the board in 2019

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A more worrying statistic was the breakdown in credit ratings, as close to one-third of new offshore Chinese bonds carried specula-

tive-grade ratings, much higher than previous years. This could indicate that tightening credit conditions in the domestic market had a

disproportionate effect on Chinese companies with shakier financials, which had to increase their reliance on the offshore market for their

refinancing needs.

Back in Singapore, the SGD corporate new-issue market had rebounded strongly in 2019 as well, with a 19% increase in SGD issuance vol-

ume to S$18.2 billion (as at 17 Dec 19) according to Bloomberg data. The growth in SGD issuance value was robust even though the number

of deals remained low relative to the past decade.

However, we observed that the majority of new SGD corporate bonds categorized under the “High Yield Seeker” investor profile by our

proprietary database were actually “structural high-yield” bonds—e.g. capital instruments of banks with investment-grade ratings and

corporate perpetual bonds. Excluding these structural high-yield credits, we estimated that “true high-yield” bonds constituted less than

10% of new SGD corporate issues in 2019, which would be exceedingly low relative to recent years’ numbers.

We suspect the persistently low true high-yield SGD issuance volume was due to issues on both the supply and demand sides. Investors

have rationally demanded significantly higher credit spreads for speculative-grade credits since the second half of 2018, in response to

macro headwinds and the correction of historically low spreads in early 2018. The higher spreads might have turned away SGD high-yield

issuers, which were mostly local issuers that probably would struggle to generate the required return on invested capital to support the

higher borrowing costs.

As the pipeline for true high-yield SGD issuance dried up, we observed that investor demand for structural high-yield notes, especially

from issuers with strong or perceived strong credit profile, had been booming in 2019. With the increasing popularity of structural high-

yield instruments, investors should be mindful of the importance of demanding reasonable risk premiums and avoid loosening their risk

controls and valuation standards in exchange for yields.

Speaking of valuation, credit spreads in the US corporate sector had fallen to near historical lows (see Figure 2). The risk premiums on both

high-yield and investment-grade US corporate issues, as well as the junk-minus-IG spread, were more than one standard deviation below

their long-term averages. When combined with the flattened yield curve, this meant that investors of US corporate bonds were looking at

poor prospective returns.

Figure 2: Credit spreads in the US are near historical lows

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Comparatively, Asian credits, particularly Asia high-yield bonds, looked significantly more attractive to us (see Figure 3). Credit spreads

on Asia high-yield credits remained above their long-term average, and offered good compensation for risks from rising protectionism and

slowing growth. Given the poor pricing of duration risk, we would prefer short- to medium-term maturities within the Asia high-yield sector.

Looking ahead, our assessment of the current market environment and valuation suggests that risks are tilted slightly to the downside for

credit investors. While the agreement of a “phase one” trade deal indicated a significant improvement in the relationship between the US

and China, longstanding and fundamental issues raised by the US, such as China’s use of industrial subsidies and the loosening of technol-

ogy-transfer requirements for foreign companies doing business in China, remained unresolved. There is also a great deal of uncertainty

around other geopolitical threats such as impeachment proceedings and election politics in the US, the social unrest in Hong Kong, Brexit,

and rising tensions in the Persian Gulf.

On the other hand, the dovish pivot by global central banks should cap downside risks, at least for the near term. Global growth should

stabilize, albeit perhaps at a relatively modest pace, and inflation should remain muted, which together suggest that we are unlikely to see

significantly higher yields for some time. Asset prices are also reasonable or attractive in a number of markets, including Asian equities

and Asian credit.

Finally, as 2019 taught us, the opportunity cost of staying on the sideline could be punitive, and the right way of thinking about our invest-

ments is to calibrate our portfolio along the spectrum that runs from defensive to aggressive, but rarely at the extreme ends. In today’s

market environment, our advice for investors is to be pro-risk, but with caution, and be realistic about their return expectation. In credit

markets, that means we should focus on getting reasonable and steady yields relative to the price we pay, and refrain from stretching our

portfolio for outsized capital appreciation opportunities. We hope our latest edition of the Recommended Bonds Report would help you

achieve this challenging undertaking.

Figure 3: Valuations of Asian credits are attractive versus developed markets

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361 Degrees International Limited

DEGREE 7.250% 03Jun2021 Corp (USD)

Bond Information

DATA AS AT 11-DEC-19

Issuer 361 Degrees International Limited

Guarantor Subsidiaries

Maturity Date 03-Jun-2021

Next Call Date 03-Jun-2020

Years to Maturity (Approx.) 1.479

Coupon Frequency Semi-Annually

Coupon Type Fixed

Annual Coupon Rate (% p.a.) 7.250

Bond Sub Sector Textiles, Apparel and Luxury Goods

Minimum Investment Quantity USD 200,000

Bond Credit Rating (S&P/Fitch) BB- / BB-

Issuer Credit Rating (S&P/Fitch) BB- / BB-

Seniority Senior Unsecured

Issue Size USD 348,072,000

HIGH YIELD SEEKER

INDICATIVE ASK PRICE

79.266INDICATIVE BID PRICE

78.008ASK YIELD TO WORST

25.044%BID YIELD TO WORST

26.327%

AVAILABLE ON BOND EXPRESS

Background¡ 361 Degrees International Limited (“361 Degrees”) is a sporting

goods company selling shoes, apparel, and accessories under its

eponymous brand.

¡ Listed on the Hong Kong Stock Exchange with a market capi-

talization of HKD2.8 billion (~S$490m), 361 Degrees operates

chiefly in China, with an extensive distribution of over 5,000

stores across the country.

¡ A majority of 361 Degrees’ stores are located in China’s third-

tier and lower-tier cities, as the company’s business model fo-

cuses on the mid-market segment with most of its shoes priced

within the RMB200 to RMB500 range.

Credit HighlightsSince our last update, 361 Degrees has registered a marked im-

provement in operating performance. Eliminating the impact of

government subsidies, grants and FX losses, adjusted earnings be-

fore interest and taxes (EBIT) jumped 10.2% from RMB 492.5m in

the first half of 2018 to RMB 542.7m in the first half of 2019.

Gearing has also declined for 361 Degrees. The gearing ratio — cal-

culated by dividing interest-bearing debt by total assets — fell 1.2

ppt to 22.4% as of end-June 2019 (31 Dec 18: 23.6%)

Our positive disposition on 361 Degrees largely stems from the

company’s ample cash holdings relative to its liabilities. As of June

2019, the company had RMB 6.4 billion in bank deposits, cash and

cash equivalents, versus the company’s RMB 6.0 billion of liabilities.

On 13 November, 361 Degrees announced that KPMG, its auditor,

had resigned due to an audit fee dispute with the company. 361

Degrees has since engaged Moore Stephens to act as its auditor in

the interim. We do not see this as cause for concern, as KPMG has

confirmed that there are no matters in connection with its resig-

nation as the auditor of the Company that need to be brought to

the attention of the shareholders. In addition, we understand that

in the past three years, 361 Degrees has not been in receipt of any

qualified audit opinions.

361 Degrees has also been repurchasing its debt in the open mar-

ket. As of 21 November 2019, the company had repurchased USD

44.8m in debt, representing 11.2% of the initial aggregate principal

amount of its bond issue. We are of the opinion that this should

be interpreted positively by bondholders as it demonstrates the

company’s ample liquidity.

RecommendationIn light of the observations in the preceding section, we strong-

ly recommend the bonds issued by 361 Degrees. The DEGREE

7.250% 03Jun2021 Corp (USD) issue matures in just under 2

years and carries a yield to maturity of 25.04%. Such a yield is

typically associated with companies undergoing restructuring or

experiencing some form of distress, which is ostensibly not the

case with 361 Degrees.

In short, given the company’s solid cash position and its robust op-

erating metrics, we think that the current pricing is very attractive.

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Banyan Tree Holdings Limited

BTHSP 4.850% 05Jun2020 Corp (SGD)

Bond Information


Issuer Banyan Tree Holdings Limited

Guarantor -


Next Call Date -



Coupon Type Fixed


Bond Sub Sector Hotels, Restaurants and Leisure

Minimum Investment Quantity SGD 250,000

Bond Credit Rating (S&P/Fitch) N.R / N.R

Issuer Credit Rating (S&P/Fitch) N.R / N.R


Issue Size SGD 100,000,000

HIGH YIELD SEEKER





4.249%


Background¡ Banyan Tree Holdings Limited (“Banyan Tree”) is a leading op-

erator and developer of premium resorts, hotels, spas, and res-

idences with 47 resorts and hotels, 63 spas and 3 golf courses

across 24 countries.

¡ Since the launch of its first resort in 1994, the Banyan Tree

group has received over 2,472 awards that were granted to its

hotels and resorts.

¡ In addition to its current hospitality and real estate portfolio,

the group is overseeing the construction of 21 hotels and re-

sorts, as well as 31 other projects that have yet to be launched.

¡ Revenue is recognized primarily through property sales and the

collection of management fees for the provision of services in

hotels, clubs and spas.

Credit HighlightsBanyan Tree’s losses widened to S$10.4m in 3Q19 from S$7.4m

in 3Q18 as total revenue dropped 20% YoY to S$55.4m from

S$69.7m. Property sales declined 36% YoY due to timing differ-

ence in revenue recognition, and management expected to recog-

nize the achieved sales of various projects in 4Q19 when construc-

tion is completed. Overall, Banyan Tree continued to report higher

selling activity as the group had unrecognized revenue of S$258m

in 3Q19, up from S$203m in 3Q18 and S$132m in 3Q17. Cash flows

should improve in 4Q19, as the group expects to recognize S$87m

of property revenue when it hands over secured sales of Cassia

Phuket Phase 3, Laguna Park Townhomes Phase 2 and Banyan Tree

3 Beds Pool villas.

On the hotel investment front, revenue declined 16% YoY to

S$31.8m in 3Q19 but overall forward bookings were 10% above

the same period last year. Looking ahead, 4Q19 and 1Q20 revenue

should be higher than 3Q19 as it coincides with the holiday season,

making it a traditionally busy period for the company’s hotels.

Total debt stood at S$526.3m as of end-September, which if com-

bined with S$58.1m of lease liabilities would translate to a net

debt-to-equity ratio of 68%. Short-term borrowings added to

S$280m, out of which S$123m is made up of secured debt. If need

be, we think the group may pledge its freehold land and buildings

to raise more debt as we think there is still room for more secured

borrowings. According to our estimates, the firm’s ratio of secured

assets to total tangible assets remains below 70%, which is the

maximum threshold set by its debt issuance program.

With the abovementioned factors in mind, the additional financing

from secured loans, rollover of some short-term borrowings, cash

inflows from the handover of units, and the firm’s cash position of

S$103m should help it tide over the near-term obligations.

RecommendationDespite the deterioration of Banyan Tree’s credit metrics in 3Q19,

we are comfortable with the company’s liquidity profile up till 1H20.

Bond yields of the BTHSP 4.850% 05Jun2020 Corp (SGD) look

compelling against comparable notes of similar maturities within

the sector. At an ask yield to maturity of 3.24%, we think that the

bond is still attractively priced among hotel issuers.

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Bond Information






3.888%

BREAD 4.000% 17Jan2023 Corp (SGD)

Issuer BreadTalk Group Limited

Guarantor -

Maturity Date 17-Jan-2023

Next Call Date -



Coupon Type Fixed


Bond Sub Sector Food and Staples Retailing






STABLE INCOME SEEKER

Background¡ BreadTalk Group Limited has become a leading bakery and res-

taurant operator since its incorporation in 2000. The group has

four main business segments namely Bakery, Food Atrium, Res-

taurant, and 4orth (a food concepts division).

¡ BreadTalk’s substantial shareholders include its founder Dr

George Quek and his wife Ms Katherine Lee, who collectively

control 56.3% of the company’s shares.

Credit HighlightsIn 9M19, BreadTalk’s revenue increased 8.7% YoY to S$494.6m as

the company registered growth across all its operating segments.

Its bottom line, however, remained under pressure with profit be-

fore tax (“PBT”) declining 33.8% YoY to S$13.3m in 9M19.

While BreadTalk is diversified in terms of its product offerings, we

note that only the Food Atrium and Restaurant segments have

contributed to profits this year. Particularly, Din Tai Fung is now

the anchor brand within the entire BreadTalk portfolio, with Res-

taurant contributing S$19.5m of PBT (+6.1% YoY), helping to offset

losses from Bakery and 4orth.

Interest expenses increased 161.0% YoY to S$18.0m in 9M19 due to

the adoption of SFRS(I) 16, leading to the recognition of lease-re-

lated expenses as interest expense. Excluding the lease-related

interest expense, interest expense from borrowings amounted to

S$6.4m, down 7.4% YoY.

Overall credit metrics deteriorated with net debt over equity ris-

ing significantly to 77.3% as at end-September (31 Dec 18: 25.6%)

largely due to a decrease in cash balance, which fell to S$124.2m

(31 Dec 18: S$185.0m). In line with BreadTalk’s business expansion

(the group added 48 outlets in 9M19), net cash flow used in in-

vesting activities more than doubled from S$23.3m in 9M18 to

S$53.5m in 9M19.

We expect BreadTalk’s net gearing to rise further in the quarters

ahead, following its acquisition of Food Junction Management

Pte Ltd. While the acquisition will boost BreadTalk’s market share

among food court operators, it had cost a huge sum of S$80m

relative to the company’s net assets (S$147.1m).

Despite BreadTalk’s sluggish profitability and high net gearing, we

take comfort from its low liquidity risk. The group’s short-term

debt of S$61.0m is well covered by S$124.2m of cash as at 30 Sep

19. Furthermore, the group has additional financial flexibility from

its S$39.2m of investment properties (office space in Shanghai

and shophouse in Singapore) and a 29% interest in Chijmes, a re-

tail property with a carrying value of S$334m (as at 31 Dec 18).

RecommendationIn our view, Breadtalk’s BREAD 4.000% 17Jan2023 Corp (SGD)

is fairly priced among other SGD-denominated food and beverage

credits, as well as real estate credits that have exposure to the

retail sector. For instance, the bonds’ ask YTM of 3.81% offers rea-

sonable yield pickup over bonds issued by Fraser and Neave, Lim-

ited (“F&N”), a SGX-listed company that is focused on beverage

productions. In comparison, the FNNSP 3.09% ’22s (YTM: 2.62%)

and FNNSP 3.8% ’27s (YTM: 3.36%) have lower yields, although

we note that F&N is significantly larger in both size and operating

scale, and has a lower net gearing.

Breadtalk Group Limited

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Cache Logistics Trust

Background¡ An industrial REIT listed on the SGX with a market capitalisation

of S$779.7m.

¡ Owns a portfolio of logistics properties in Singapore and Aus-

tralia.

¡ Total valuation of investment properties stood at S$1.31 billion

as at 30 Sep 19.

Credit HighlightsIn 3Q19, Cache Logistics Trust’s (“CLT”) portfolio occupancy was

stable at 94.0%, which was decent relative to the industry aver-

age in Singapore and Australia. Weighted average lease to expiry

by net lettable area stood at a decent 3.2 years, with rental esca-

lations within master leases ranging between 1-4% p.a. However,

21.1% of leases by gross rental income (“GRI”) is due to expire in

2020 (2021: 25.0%), which is significant in our opinion.

CLT reported gross revenue of S$27.7m in 3Q19, down 12.0% YoY.

Factors contributing to the lower revenue include the conversion

of Cache Gul LogisCentre from a master lease to a multi-tenan-

cy structure in April, transitory downtime between replacement

tenants in Commodity Hub, lease expiries at certain properties,

absence of contribution from the divested Jinshan Chemical Ware-

house, and a weaker AUD.

Interest coverage (EBIT over interest expense, excluding fair val-

ue changes of investment properties) was satisfactory at 2.9x, al-

though weakened from 4.0x in 3Q18 as net financing costs rose

23.5% YoY to S$5.4m. Including distributions on perpetual securi-

ties, we estimate CLT’s interest coverage at 2.3x in 3Q19.

Encouragingly, CLT’s tenant concentration risk was lower with

rental income contribution from top-ten tenants gradually declin-

ing from 75% in 2016 to 64% in 2018 and 55.3% in 3Q19. There

was also a greater balance between multi-tenanted and single-us-

er lease structures, as single-tenant leases fell to around 24% of

gross revenue in 3Q19 from 56% in 2016. GRI from the trust’s ma-

jor tenant, CWT Pte Limited, had also reduced to 10.7% in Septem-

ber (4Q18: 20.6%).

Cache’s total borrowings rose to S$507.5m in 3Q19 (4Q18:

S$474.7m), after the REIT incurred additional debt to partially

finance its acquisition of a warehouse in Australia. Reported ag-

gregate leverage (debt over assets) increased to 38.3% (4Q18:

36.2%). Including the S$100m CACHE 5.5% perpetual securities

as debt, we estimate CLT’s adjusted aggregate leverage at ~43%.

CLT had short-term borrowings of S$94.9m in 3Q19, while its cash

balance was S$14.2m. However, we think the trust’s refinancing

risk is manageable given its decent financial flexibility. Investment

properties had a carrying value of S$1.38 billion, while secured

debt as a percentage of investment properties was just 5.3%. The

comfortable asset-to-secured debt ratio should allow CLT to raise

more secured borrowings if needed.

RecommendationCache delivered satisfactory results in 3Q19, although we remain

mindful of its tenant concentration risk. We think the 4.77% yield

to call (Z-spread: 325bps) offered by the CACHE 5.500% Perpet-

ual Corp (SGD) represents a generous return. The perps are first

callable at par on 1 Feb 23, then on every distribution payment date

thereafter. If not redeemed at first call, the distribution rate on the

notes will reset to the sum of the prevailing five-year SGD swap

offer rate and the initial spread of 3.58%.





4.873%

Reset Date : 01 Feb 2023 and every 5 years thereafterReset Rate : Prevailing SGD 5Y SOR + Initial Spread (3.580%)

Reference Rate

CACHE 5.500% Perpetual Corp (SGD)

Bond Information


Issuer Cache Logistics Trust

Guarantor -

Maturity Date Perpetual

Next Call Date 01-Feb-2023

Years to Next Call (Approx.) 3.145


Coupon Type Variable


Bond Sub Sector Real Estate Investment Trusts




Seniority Subordinated


HIGH YIELD SEEKER

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CAPLSP 3.800% 28Aug2024 Corp (SGD)

Bond Information


Issuer CapitaLand Treasury Limited

Guarantor CapitaLand Limited

Maturity Date 28-Aug-2024

Next Call Date -



Coupon Type Fixed


Bond Sub Sector Real Estate Management

and Development











2.738%

Background¡ Borne of the merger between DBS Land and Pidemco in 2000.

¡ CapitaLand Limited (“CapitaLand”) maintains a presence in

more than 200 cities across 30 countries.

¡ Managed a global portfolio worth S$131.7 billion as at 30 Sep-

tember 2019.

¡ Developer of Raffles City Singapore and seven other Raffles

City offshoots in China.

¡ Manages eight listed real estate investment trusts (REITs) and

business trusts, together with 25 private equity funds.

Credit HighlightsOn 14 January 2019, CapitaLand announced that it would be en-

tering into a transaction with Temasek to acquire the share cap-

ital of two wholly-owned subsidiaries of Ascendas-Singbridge Pte

Ltd. The transaction saw Temasek’s shareholding in CapitaLand

increase to 50.8%.

CapitaLand recorded a strong operating performance in the third

quarter of 2019. Taking contributions from the newly acquired As-

cendas-Singbridge properties into account, Capitaland saw its rev-

enue for the third quarter surge 37.1% YoY to S$1.7 billion (3Q18:

S$1.3 billion). EBIT rose 30.2% to S$1.1 billion (3Q2018: S$824m),

while profit after tax and minority interests declined 7.8% to

S$333.9m.

As of end September, CapitaLand had a net debt to equity ratio of

0.69x, down from 0.73x reported in the previous quarter. The group’s

interest coverage ratio - EBITDA / Net interest expense – was 6.9x,

down from the 7.3x recorded in the previous quarter. The group main-

tained an average debt maturity of 3.6 years (2Q19: 3.4 years).

CapitaLand maintained an excellent liquidity position with some

S$11.8 billion in cash balances and available undrawn credit facil-

ities, as of September 2019. A relatively small amount of S$1.5

billion of debt is due in 2019, and an estimated S$5.0 billion and

S$4.0 billion is due in 2020 and 2021 respectively. Thus, even if

the company loses access to the capital markets, its untapped

sources of credit and cash reserves should stand the company in

good stead.

In the middle of this year, Ascott Residence Trust (‘Ascott REIT’)

and Ascendas Hospitality Trust (‘A-HTrust’), REITs in which Cap-

itaLand held premerger stakes of 45% and 28% respectively,

announced that they would be combining to form a group with a

total asset value in excess of S$7 billion. Under the terms of the

deal, Ascott REIT will acquire A-HTrust units for S$1.0868 per unit,

comprising S$0.0543 in cash and 0.7942 Ascott REIT-BT units at

a price of S$1.30. When the transaction is completed, CapitaLand

will hold a stake of about 40% in the combined group. The trans-

action has been approved by shareholders of the respective com-

panies.

RecommendationGiven the company’s excellent credit metrics, we strongly recom-

mend CapitaLand bonds as a whole. The ample liquidity enjoyed

by the company, coupled with support from its key shareholder

Temasek, allows us to express our confidence in this company with

virtually no reservations.

In practical terms, bond investors might wish to consider the

CAPLSP 3.800% 28Aug2024 Corp (SGD) issue, which bears a

yield to maturity of 2.70%.

CapitaLand Limited

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CENSUN 7.000% 03Jul2020 Corp (SGD)

Bond Information


Issuer Century Sunshine Group Holdings

Limited


Maturity Date 03-Jul-2020

Next Call Date 03-Jan-2020



Coupon Type Fixed


Bond Sub Sector Chemicals



Issuer Credit Rating (S&P/Fitch) N.R / B



HIGH YIELD SEEKER





30.567%


Century Sunshine Group Holdings Limited

Background¡ Established by founder Mr Chi Wen Fu in 2000 as a fertilizer

producer in China, Century Sunshine Group Holdings Limited is

listed on the HKEX since 2004 and sported a market cap of

around HKD 1.04 billion (~USD 133m) as of 11 Dec 19.

¡ Besides manufacturing and selling fertilizer, Century Sunshine

is also involved in magnesium alloy production through its

72.4%-owned, HKEX-listed subsidiary, Rare Earth Magnesium

Technology Group Holdings Limited (market cap: HKD 1.94 bil-

lion).

¡ In addition to its current hospitality and real estate portfolio,

the group is overseeing the construction of 21 hotels and re-

sorts, as well as 31 other projects that have yet to be launched.

¡ Revenue is recognized primarily through property sales and the

collection of management fees for the provision of services in

hotels, clubs and spas.

Credit HighlightsCentury Sunshine reported revenue of HKD 2.12 billion in 1H19,

down 4.2% YoY from HKD 2.21 billion in 1H18. The decline in top

line was led by an 8.7% drop in the company’s magnesium product

business to HKD 726m (1H18: HKD 796m), as a 2.9% pickup in the

segment’s average selling price (“ASP”) to HKD 25,567 per ton

was unable to offset the 11.1% fall in volume. The fertilizer business

was largely stable with HKD 1.36 billion of revenue (-1.6% YoY), as

a 5.4% drop in volume erased a 4.1% gain in ASP.

The management attributed the decline in magnesium product

revenue to their adjustment of production structure, by moving

production and sales from low-margin products. This is support-

ed by the improvement in the magnesium segment’s gross profit

margin, which rose three percentage points YoY to 28.4% in 1H19.

Overall gross profit fell by just 2.5% YoY to HKD 535m (1H18: HKD

549m), which translated to a gross profit margin of 25.3% (1H18:

24.9%).

Excluding other gains/losses and net exchange difference, we find

Century Sunshine’s EBIT at HKD 382m in 1H19, marginally higher

from HKD 378m in 1H18. Meanwhile, finance costs sunk 10.2% YoY

to HKD 82m (1H18: HKD 92m), even though total borrowings were

mostly unchanged YoY at HKD 2.11 billion (30 Jun 18: HKD 2.12

billion). According to the company, the decrease in finance costs

was mainly due to a change in the debt composition—less financing

by bills, which carried relatively high interest expenses. Interest

coverage as measured by EBIT over finance costs consequently

improved to 4.6x in 1H19 (1H18: 4.1x).

Although Century Sunshine continued to generate positive net op-

erating cash flow of HKD 192m in 1H19 (1H18: HKD 325m), we note

that it was insufficient to cover the HKD 274m of investing cash

outflow. Cash and cash equivalents thus decreased to HKD 533m

at the end of June (31 Dec 18: HKD 718m), and net debt over equity

rose to 38% (31 Dec 18: 34%). Liquidity remained tight with HKD

1.07 billion of debt due with a year, representing 51% of total debt.

RecommendationWhile Century Sunshine’s significant maturity wall and depressed

equity valuation (relative to its indebtedness) continue to weigh on

the company’s credit profile, we are cautiously optimistic that it

would be able to refinance its short-term borrowings (mostly bank

debt), supported by its decent profitability, positive operating cash

flows and low leverage. As such, we remain positive on the CENSUN

7.000% 03Jul2020 Corp (SGD), which offers an outsized YTM of

28.3%.

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China Evergrande Group

Background¡ China Evergrande Group is a HKEX-listed mainland property de-

veloper with a market cap of HKD257 billion (as at 11 Dec 19). It

is one of the largest real estate developers in mainland China,

with over 810 projects in more than 280 cities.

Credit HighlightsEvergrande’s operating income, gross profit, and net profit all de-

clined in 1H19 compared to the same period last year. Operating

income dropped 24.4% YoY to RMB 227 billion, while net profit

attributable to shareholders declined 51.6% YoY to RMB 14.9 bil-

lion. Excluding non-recurring profits or losses and non-property

business losses, core business profit slipped 44.8% YoY to RMB

30.4 billion.

As at end-June, Evergrande’s total debt amounted to RMB 813.2

billion, adding RMB 140 billion from six months ago. The group’s

net debt over EBITDA was manageable at 4.98x (annualized) in

1H19. Its net gearing was 152%, similar to that of end-December.

Looking at Evergrande’s cash flow, it is highly unlikely that the

group will be able to meet its short-term obligations from cash

collection on sales alone. Nonetheless, we still believe that Ever-

grande is able to repay its debts. Firstly, although the sales per-

formance in 1H19 was rather disappointing, it was mostly due to

the timing of the property development cycle. As we expect the

group’s property completion and handovers to be concentrated in

2H19, core business profit should increase correspondingly.

Secondly, Evergrande’s cash reserves rose around 60% in 1H19 to

a rich level of RMB 207 billion. Although there is still a gap with its

RMB 375.8 billion of short-term loans, we think the group should

be able to meet its short-term obligations, after taking into ac-

count its cash collection from sales and RMB 81 billion of restricted

cash.

Thirdly, according to CRIC, Evergrande’s land bank stood above

all other developers with an attributable land bank value of RMB

2,549.6 billion as of end-2018. Evergrande’s extremely low land

acquisition costs helped the group achieve a decent gross profit

margin of 34.0% in 1H19. We think the company has the ability to

maintain its cash flow through price cuts and monetization of its

land bank in times of need.

In September and October, Evergrande achieved record-breaking

contracted sales of RMB 83.1 billion and RMB 90.3 billion respec-

tively. Assuming an attributable cash collection rate of 75%, we

estimate that the group would receive cash inflow of about RMB

125 billion by year-end from sales achieved in these two months.

Even if we take into consideration spending such as construction

cost, Evergrande’s liquidity and net gearing are expected to be im-

proved by year-end.

RecommendationGiven Evergrande’s current debt structure and policy headwinds

facing the property sector, we believe its mid- to short-term

bonds are more investment worthy. We like the EVERRE 6.250%

28Jun2021 Corp (USD) (YTM: 10.78%), EVERRE 8.250%

23Mar2022 Corp (USD) (YTM: 12.79%), and EVERRE 9.500%

11Apr2022 Corp (USD) (YTM: 13.15%), which still offer attractive

returns despite the recent rebound in prices.

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13.033%

EVERRE 8.250% 23Mar2022 Corp (USD)

Bond Information

Issuer China Evergrande Group

Guarantor Multiple Guarantors

Maturity Date 23-Mar-2022

Next Call Date 23-Mar-2020



Coupon Type Fixed



and Development


Bond Credit Rating (S&P/Fitch) N.R / B

Issuer Credit Rating (S&P/Fitch) B+ / B+

Seniority Secured

Issue Size USD 2,025,000,000







10.974%

EVERRE 6.250% 28Jun2021 Corp (USD)

Bond Information




Next Call Date -



Coupon Type Fixed



and Development


Bond Credit Rating (S&P/Fitch) B / B


Seniority Secured







13.347%

EVERRE 9.500% 11Apr2022 Corp (USD)

Bond Information



Maturity Date 11-Apr-2022

Next Call Date -



Coupon Type Fixed



and Development


Bond Credit Rating (S&P/Fitch) B / N.R


Seniority Secured


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Background¡ City Developments Limited (“CDL”) is a leading global real es-

tate operating company with a network spanning 103 locations

in 29 countries and regions.

¡ Listed on the Singapore Exchange with a market capitalisation

of S$9.76 billion.

¡ CDL’s London-listed subsidiary, Millennium & Copthorne Hotels

plc is one of the world’s largest hotel chains with over 145 ho-

tels.

Credit HighlightsFor the third quarter ended September 2019, CDL posted revenue

of S$885.3m, a decrease of 12.9% YoY from restated revenue of

S$1.0 billion posted in 3Q18. The decline was in large part attribut-

able to the timing of revenue recognition for various development

projects. In the third quarter of 2018, CDL recognised significant

revenue from the ‘New Futura’ project, which sold 38 units in the

quarter. The project has since been fully sold. Another factor con-

tributing to the YoY decline was the high base effect from signif-

icant revenue recognition from ‘The Criterion’ Executive Condo-

minium last year.

Operating earnings declined 52.5% YoY to S$127.8m (3Q18 re-

stated: S$268.4m), while profit before tax declined 37.9% YoY to

S$155.5m (3Q18 restated: S$250.6m).

Basic earnings per share declined 33.5% to 12.7 cents (3Q18 re-

stated: 19.1 cents).

On the credit front, the group saw its net gearing ratio – net debt

(gross borrowings less cash and restricted deposits) over total as-

sets – increase slightly from 18.3% in December 2018 to 23.4%

in September 2019. CDL’s cash position improved, with the group

holding S$2.7 billion in cash and cash equivalents in September

2019, some S$400m compared to the end of 2018.

Of the S$8.4 billion in gross borrowings incurred by CDL, S$1.6

billion is repayable within a year.

The group also benefits from a liquid balance sheet. At the end

of September 2019, CDL had a current ratio – defined as current

assets over current liabilities - of 2.9x.

As a whole, the moderate level of gearing and ample cash deposits

provide CDL with a significant degree of financial flexibility, and

should provide investors with the assurance that the bonds are of

a lower risk investment compared with bonds issued by property

developers with higher leverage.

RecommendationGiven CDL’s low gearing and abundance of liquid assets, the com-

pany’s bonds are particularly suitable for investors looking for a

conservative investment option. The company has a number of

outstanding bonds that are traded on the secondary market and

we would recommend sticking to the near term issues, due to CDL’s

relatively flat yield curve.

We particularly like the CITSP 3.480% 03Apr2023 Corp (SGD)

and CITSP 3.750% 06Jul2022 Corp (SGD) issues, which carry

yields of 2.55% and 2.42% respectively.

Other bonds issued by CDL include the CITSP 2.800% 27Jun2023

Corp (SGD), CITSP 3.480% 15Jun2026 Corp (SGD) and CITSP

3.000% 17Jan2024 Corp (SGD) issues.

City Developments Limited (“CDL”)

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CITSP 3.750% 06Jul2022 Corp (SGD)

Bond Information


Issuer City Developments Limited

Guarantor -


Next Call Date -



Coupon Type Fixed



and Development











2.519%

CITSP 3.480% 03Apr2023 Corp (SGD)

Bond Information



Guarantor -


Next Call Date -



Coupon Type Fixed



and Development











2.635%

CITSP 2.800% 27Jun2023 Corp (SGD)

Bond Information



Guarantor -


Next Call Date -



Coupon Type Fixed



and Development




Seniority Unsecured







2.673%

Continued on next page �

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CITSP 3.000% 17Jan2024 Corp (SGD)

Bond Information



Guarantor -


Next Call Date -



Coupon Type Fixed



and Development




Seniority Unsecured







2.769%

CITSP 3.480% 15Jun2026 Corp (SGD)

Bond Information



Guarantor -


Next Call Date -



Coupon Type Fixed



and Development











2.977%

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DBSSP 4.700% Perp/Callable 2020 Pref (SGD) - Retail

Bond Information


Issuer DBS Bank Limited

Guarantor -


Next Call Date 22-Nov-2020



Coupon Type Fixed


Bond Sub Sector Banks


Bond Credit Rating (S&P/Fitch) BBB / BBB

Issuer Credit Rating (S&P/Fitch) AA- / AA-

Seniority Junior Subordinated







2.414%

Background¡ DBS Group Holdings Ltd (“DBS”) is the holding company of DBS

Bank, the largest bank in Southeast Asia, with S$581 billion in

assets as at 30 Sep 19.

¡ DBS provides a full range of services in consumer, SME, and cor-

porate banking. The bank’s long term ratings of ‘AA-’ (S&P and

Fitch) and ‘Aa2’ (Moody’s) indicate a very low default risk and

the bank has a strong capacity for payment of its financial obli-

gations.

¡ Established since 1968, DBS ranks as one of the strongest banks

regionally in terms of funding, liquidity and capital. Singapore’s

sovereign wealth fund, Temasek Holdings (Private) Limited, is

the bank’s largest shareholder with a 29.9% stake in the group.

Credit HighlightsIn 3Q19, DBS achieved strong profit on the back of improving loan

growth, as total income increased 13% YoY to S$3.8 billion. Com-

pared to a year ago, net profit gained 15% to S$1.6 billion, driv-

en by higher non-interest income. Gains on investment securities

and higher trading income contributed to a 35% YoY increase in

non-interest income. In the meantime, net interest margin (“NIM”)

expanded 4 basis points (“bps”) from a year ago to 1.9%.

The bank has a strong liquidity position and a market-leading

share of low-cost and stable SGD retail deposits. As of 3Q19, the

loan-to-deposit ratio was 88%, while its liquidity coverage and net

stable funding ratios maintained above 100%, at 131% and 110%

respectively.

The loan portfolio is well diversified across industries with no single

sector accounting for more than 24% of the total portfolio. Allow-

ances for credit and other losses climbed 8% YoY to S$254m due

to higher general allowances for credit losses as well as heightened

expected credit losses for loans in Greater China.

Nonetheless, asset quality remained sound as the non-perform-

ing loan (“NPL”) ratio dropped to 1.5% in 3Q19 from 1.6% in 3Q18.

Breaking down the NPLs across various geographies, NPLs in Sin-

gapore increased 5.7% YoY to S$3.6 billion, while NPLs in Hong

Kong dropped 8.5% YoY to S$494m.

As for next year’s projections, the group’s CEO Mr Piyush Gupta

expects a similar loan growth rate in 2020, although the NIM is

estimated to decline by 7 bps. Total income is projected to grow in

the low single-digit range and credit cost would stay at the same

level as 2019.

The bank’s capital adequacy ratios remained strong. As at 30 Sep

19, DBS’s Common Equity Tier-1 ratio was 13.8%, up from 13.3% a

year ago and well above the minimum regulatory requirement of

9.4%. Tier-1 capital adequacy ratio also improved to 14.7% from

14.4% a year ago.

RecommendationAmong the bank’s SGD capital instruments, we prefer the DBSSP

4.700% Perp/Callable 2020 Pref (SGD) - Retail (YTW: 2.31%) and

DBSSP 3.980% Perpetual Corp (SGD) (YTW: 1.81%). In the US

dollar space, we like the DBSSP 3.600% Perpetual Corp (USD)

(YTW: 2.88%) over other comparable USD-denominated notes.

These three notes are first callable in November 2020, September

2025 and September 2021 respectively.

DBS Group Holdings Ltd


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Reset Date: 12 Sep 2025 and every 7 years thereafter Reset Rate: Prevailing SGD 7Y SOR plus the Initial Spread (1.650%)

Reference Rate

DBSSP 3.980% Perpetual Corp (SGD)

Bond Information


Issuer DBS Group Holdings Limited

Guarantor -


Next Call Date 12-Sep-2025







Bond Credit Rating (S&P/Fitch) N.R / BBB

Issuer Credit Rating (S&P/Fitch) N.R / AA-


Issue Size SGD 1,000,000,000






1.821%

Reset Date: 07 Sep 2021 and every 5 years thereafter Reset Rate: 5Y USD Swap Rate + Initial Spread (2.39%)

Reference Rate

DBSSP 3.600% Perpetual Corp (USD)

Bond Information


Issuer DBS Group Holdings Limited

Guarantor -










Issuer Credit Rating (S&P/Fitch) N.R / AA-








3.127%


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Background¡ A Chinese airline that provides passenger and cargo air

transportation services with a fleet size of 706 aircrafts as at

30 Sep 19.

¡ The company’s controlling shareholder is China Eastern Air

Holding Company Limited (56.4% stake), which is fully owned

by the State-owned Assets Supervision and Administration

Commission of China (“SASAC”).

¡ Market capitalisation: HKD86.1 billion.

Credit HighlightsIn 9M19, CEA’s revenue jumped 6.3% YoY to RMB93.4 billion,

boosted by an increase of 10.4% YoY in passenger traffic volume

to 166,562.82m passenger-kilometres. Available seat kilometres

(a measure of passenger carrying capacity) rose at a higher pace

of 10.9% YoY, and consequently the airline’s passenger load factor

fell 0.33 percentage points to 82.57%.

Total operating expenses rose 7.2% YoY to RMB79.8 billion, at a

faster pace than top-line growth. Operating profit hence fell 4.1%

YoY to RMB5.5 billion, and operating profit margin was lower at

5.9% (9M18: 6.6%). We think fuel cost was likely the biggest ex-

pense item that detracted from profitability, as Brent crude oil

prices rose 10.7% year-to-date September. CEA does not hedge

fuel costs, which is a significant operating risk in our view given

the volatile oil prices.

Meanwhile, finance costs increased to RMB5.6 billion (9M18:

RMB5.0 billion) and CEA recorded RMB6.0 billion of profit before

tax, down from RMB6.3 billion in 9M18. Based on the adjusted EBIT

(excluding non-operating income and expenses) of RMB11.1 billion

in 9M19 (9M18: RMB10.8 billion), we estimated that CEA’s interest

coverage ratio was ~2.0x in 9M19, down from 2.1x in previous year’s

corresponding period.

We estimated CEA’s total interest-bearing liabilities including fi-

nance leases at RMB122.5 billion as at 3Q19, down from RMB132.6

billion in 4Q18. Net gearing improved correspondingly to 1.6x in

3Q19 from 2.1x in 4Q18. Besides a lower debt load, the improved

net gearing also partly reflected the increased cash balance of

RMB4.5 billion (4Q18: RMB646m).

Liquidity risk was manageable with RMB2.2 billion of short-term

borrowings against RMB4.5 billion of cash as at 30 Sep 19. The

company also just recently in December issued KRW300 billion of

2.4% notes due 2022, which should help to improve its financial

liquidity.

RecommendationThe CHIEAS 2.800% 16Nov2020 Corp (SGD) carries an ask

YTM of 2.54% (Z-spread: 101bps), which we think provides a fair

compensation for CEA’s credit risk, after taking into account the

company’s strong track record of government support in times of

need. We note that the bond documentation contains a change-

of-control clause, which provides investors the option to sell the

bonds back to CEA at 101% if SASAC owns less than 50% of CEA.

Therefore, investors are protected against the unlikely event of

CEA losing its strong parental backing.

China Eastern Airlines Corporation Limited (“CEA”)

CHIEAS 2.800% 16Nov2020 Corp (SGD)

Bond Information


Issuer Eastern Air Overseas Hong Kong

Co Limited

Guarantor China Eastern Airlines Corp Limited

Maturity Date 16-Nov-2020

Next Call Date -



Coupon Type Fixed


Bond Sub Sector Airlines











3.002%

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ESR Cayman Limited (“ESR”)

Background¡ A logistics real estate developer and operator focused on the

Asia Pacific region, with interests across China, Japan, South

Korea, Singapore, Australia, and India.

¡ As of 30 Jun 19, the group has total assets under management

(“AUM”) of USD20.2 billion, almost tripled from USD7.4 billion in

December 2016.

¡ ESR’s key shareholders include Warburg Pincus, JD.com, and SK

Holdings.

Credit HighlightsRevenue for the six months ended June rose 66.3% YoY to

USD155.8m, following the acquisition and consolidation of Prop-

ertylink in April. An increase in management fee income, in line

with the growth in AUM, and the consolidation of Commercial &

Industrial Property Pty Ltd (“CIP”; acquired in August 2018) also

contributed to revenue growth.

The consolidation of CIP’s construction income and cost result-

ed in a significant jump in cost of sales from USD2.1m in 1H18 to

USD41.8m in 1H19. Gross profit margin (“GPM”) as a result fell from

97.8% to 73.2% over the same period. We are unperturbed by the

sharp fall in GPM as CIP operates a construction business that has

a different margin profile, and the current level of GPM remains

healthy in our opinion.

ESR reported adjusted EBITDA of USD125.2m, up 29.8% YoY.

Nonetheless, interest cover (adjusted EBITDA over interest ex-

pense) weakened to 1.5x (1H18: 2.1x) due to a bigger jump in finance

costs to USD83.4m (+81.4% YoY).

As at 31 Aug 19, ESR Cayman had total borrowings of USD3.04

billion, of which USD589.5m (19.4%) were short-term debt. Total

borrowings doubled from USD1.46 billion at the end of December

2018, following the drawdown of debt for the Propertylink acquisi-

tion and consolidation of Propertylink’s balance sheet.

Net debt over equity was 74% at the end of June, while we esti-

mated adjusted net gearing (including preference shares and per-

petual securities in debt) at 93%. We think ESR’s market capitali-

sation of HKD50.8 billion (~USD6.5 billion) provides ample equity

cushion behind its USD3.04 billion of debt. Furthermore, based on

the disclosed intended use of proceeds from ESR’s IPO in October,

we estimated pro forma adjusted net gearing to fall significantly to

approximately 61% post-IPO.

ESR Cayman had a comfortable liquidity position with USD1.16 bil-

lion of cash and bank balances and USD85.4m of unutilized bank-

ing facilities in August. The liquidity reserve was more than enough

to cover near-term obligations of USD589.5m and USD100m of

perpetual securities (assuming that they would be redeemed on

the first call date of 7 Jun 20).

RecommendationWe like ESR’s business model and the synergies between its devel-

opment and investment vehicles, which allow the group to monet-

ise matured assets and free up capital for growth deployment. We

think the ask YTM of 4.89% (Z-spread: 337bps) on the ESRCAY

6.750% 01Feb2022 Corp (SGD) provides decent compensation

for ESR’s credit risk. The ESRCAY 7.875% 04Apr2022 (USD)

offers even better value with its ask YTM of 6.50% (Z-spread:

488bps). As a pricing reference, the ARASP 4.15% ‘24s of ARA

Asset Management Limited (2Q19 adjusted net gearing: 1.0x) are

indicating at an ask YTM of 3.47% (Z-spread: 190bps).

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6.648%

ESRCAY 7.875% 04Apr2022 Corp (USD)

Bond Information

Issuer ESR Cayman Limited

Guarantor -


Next Call Date -



Coupon Type Fixed



and Development











5.082%

ESRCAY 6.750% 01Feb2022 Corp (SGD)

Bond Information

Issuer ESR Cayman Limited

Guarantor -

Maturity Date 01-Feb-2022

Next Call Date -



Coupon Type Fixed



and Development







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Background¡ ESR-REIT (“EREIT”) is one of Singapore’s largest industrial RE-

ITs with a market cap of S$1.9 billion.

¡ A pure-play industrial REIT, EREIT manages a portfolio of 57 in-

dustrial properties in Singapore as of 30 Sep 19, with an aggre-

gate property value of S$3.13 billion and total gross floor area of

approximately 15.1m square feet.

¡ EREIT is sponsored by ESR Cayman Limited, a logistics real es-

tate developer and manager.

Credit HighlightsEREIT delivered another quarter of decent portfolio performance.

In the three months ended September, EREIT’s portfolio occupan-

cy rate was stable at 91.0%, outperforming the industrial average

occupancy rate of 89.3% reported by JTC. Furthermore, EREIT’s

rental reversions swung to a positive 0.6% in year-to-date 3Q19

(2018: -2.9%). Tenant concentration risk was also well managed

with top 10 tenants (out of 332) accounting for about 30.7% of the

REIT’s rental income (2Q19: 31.1%).

We think a quarter-on-quarter comparison of EREIT’s 3Q19 re-

sults is more meaningful given the trust’s consolidation of Viva

Industrial Trust following their merger in October 2018. Despite

stable portfolio occupancy and good portfolio metrics, EREIT’s

gross revenue fell 2.8% QoQ to S$63.8m in 3Q19 from S$62.0m in

2Q19. Meanwhile, net property income was also down by 5.4% to

S$45.3m. Higher management fees due to the acquisition of 49%

interest in 48 Pandan Road in August 2019 were partly why NPI fell

at a faster pace than revenue.

Excluding non-operating items such as the change in fair value of

financial derivatives, we estimate EREIT’s adjusted interest cov-

erage ratio (EBIT over borrowing costs) at approximately 3.1x in

3Q19, weakening slightly from 3.0x in 2Q19 and reflecting the in-

crease in interest expenses (+3.8% from the previous quarter). As

of 3Q19, EREIT’s reported aggregate leverage ratio stood at 41.6%,

inched up from 39.0% in 2Q19, reflecting higher total borrowings

of S$1.24 billion (2Q19: S$1.18 billion). EREIT completed in Octo-

ber a preferential offering that raised S$50m of equity funding.

Assuming proceeds raised were used to pare down debt, EREIT’s

pro-forma aggregate leverage should fall to 40.1%.

As at 30 Sep 19, EREIT had S$178.4m of short-term debt. While the

amount of near-term obligations was significant as compared to

just S$17.6m of cash, we think the trust’s refinancing risk remained

manageable, as its enlarged property portfolio of S$3.13 billion was

fully unencumbered. In addition, EREIT had access to S$85m of

undrawn available committed facilities as at 30 Sep 2019.

RecommendationWe are positive on the EREIT 4.600% Perpetual Corp (SGD),

which carries a YTW (ask) of 4.31% (Z-spread: 319bps). A switch

from Mapletree Logistics Trust’s (aggregate leverage: 37.0% as at

30 Sep 19) MLTSP 3.65% perps (YTW: 3.39%) would offer a yield

pick-up of 92bps. We think this represents ample compensation

for EREIT’s smaller scale and higher leverage. For investors who

are adverse to extension and subordination risks, the plain vanilla

EREIT 3.950% 21May2020 Corp (SGD) also offers good value for

its short remaining maturity, indicating at an ask YTM of 2.74%

(Z-spread: 117bps).

ESR-REIT

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EREIT 3.950% 21May2020 Corp (SGD)

Bond Information


Issuer ESR-MTN Private Limited

Guarantor ESR-REIT

Maturity Date 21-May-2020

Next Call Date -



Coupon Type Fixed













3.383%

Reset Date : 03 Nov 2022 and every 5 years thereafterReset Rate: Prevailing SGD 5Y SOR + Initial Spread (2.6%)

Reference Rate

EREIT 4.600% Perpetual Corp (SGD)

Bond Information


Issuer ESR-REIT

Guarantor -


















4.327%

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Background¡ Fraser and Neave, Limited (“F&N”) is a SGX-listed (market cap:

~S$2.5 billion) consumer group with a strong foothold in South-

east Asia’s food and beverage (“F&B”) markets.

¡ The Sirivadhanabhakdi family of TCC Group controlled around

87.7% of F&N’s shares via Thai Beverage PLC and TCC Assets

Ltd.

¡ F&N’s beverages brands include such household names as

100PLUS, F&N SEASONS, OISHI, F&N NUTRISOY, and F&N MAG-

NOLIA.

¡ Geographically, F&N’s drinks are distributed mainly in Southeast

Asia across Singapore, Malaysia, Thailand, and Vietnam, with

Malaysia and Singapore being the anchor markets.

Credit HighlightsF&N delivered healthy results in FY19 ended 30 September, with

improvements in both top line and bottom line. During the year,

revenue jumped 3.7% YoY to S$1.90 billion led by broad-based

sales growth in the beverages and dairies segments, whose reve-

nue rose 6.5% YoY and 3.6% YoY to S$470.7m and S$1.15 billion

respectively. Meanwhile, its printing segment returned flattish re-

sults, achieving revenue of S$277.4m, down marginally by 0.6%

YoY.

Due to lower input costs for both dairies and beverages, F&N’s cost

of sales rose at a slower pace than revenue, resulting in a gross

profit margin of 32.8%, up from 31.8% in FY18. Operating profit

rose by an impressive 39.9% YoY to S$169.6m, supported by high-

er sales and favourable input costs. In addition, we note that rev-

enues have increased even as marketing expenses fell 1.2% YoY.

Profit before tax rose 33.9% YoY to S$267.5m, fuelled by an in-

crease in the share of results from associated companies (+16.6%

YoY to S$113.9m), as Vietnam Diary Products Joint Stock Company

(20%-owned by F&N) generated higher profits in the year.

We note that finance costs fell 29% YoY to S$21.7m in FY19, as total

borrowings fell to S$829.7m (4QFY18: S$871.4m). In line with high-

er earnings, F&N’s interest coverage (EBIT over interest expense)

improved to 14.1x in FY19 from 8.1x in FY18. However, net gearing

(net debt over equity) rose to 12.3% from 10.8% over the same

period, mainly due to the decrease in cash balances to S$420.3m

(4QFY18: S$530.1m). The company drew on its cash reserves to fi-

nance S$191.8m of investing cash outflow and S$128.5m of financ-

ing outflow (of which S$96.2m represented dividend payments),

which exceeded S$210.6m of net cash from operating activities.

F&N refinancing risk is minimal with only S$9.2m of debt due with-

in the next year. In addition, we continue to like F&N’s strong cash

generation, supported by quick cash collections typical in the F&B

sector. In FY19, net cash from operating activities rose 32.5% YoY

to S$210.6m.

RecommendationAs a beverage producer, F&N stands out among SGD bond issuers

as it offers a relatively rare diversification opportunity for inves-

tors. In addition, we think F&N’s bonds offer decent returns against

its healthy credit metrics and strong operating cash flow. We like

both the FNNSP 3.090% 23Mar2022 Corp (SGD) and FNNSP

3.800% 21Apr2027 Corp (SGD), which have ask YTMs of 2.62%

and 3.36% respectively, indicating spreads of 110bps and 165bps

above SGD swaps.

Fraser and Neave, Limited

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Bond Information


Issuer F&N Treasury Private Limited

Guarantor Fraser & Neave Limited


Next Call Date -

Years to Maturity (approx.) 2.282


Coupon Type Fixed


Bond Sub Sector Beverages











2.757%

FNNSP 3.800% 21Apr2027 Corp (SGD)

Bond Information


Issuer F&N Treasury Private Limited

Guarantor Fraser & Neave Limited


Next Call Date -



Coupon Type Fixed


Bond Sub Sector Beverages











3.405%

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Fosun International Limited

Background¡ Fosun International is a conglomerate headquartered in Shang-

hai and listed on the HKEX (0656.HK), with a market capitaliza-

tion of HKD 90.3 billion as at 11 Dec 19.

¡ The group consists of various business sectors in which all sub-

sidiaries, associates and joint ventures are categorized into

three ecosystems: Health (Pharmaceutical, Medical Services &

Health Management and Health Products), Happiness (Tourism

& Leisure, Fashion and Consumer & Lifestyle) and Wealth (Insur-

ance, Finance and Investment).

¡ Some notable companies under the Fosun umbrella include Fo-

sun Pharma and its affiliate Sinopharm, Luz Saúde, Gland Phar-

ma, Tsingtao Brewery, Baihe Jiayuan, AHAVA, Yuyuan Inc., Fos-

un Tourism Group, Premier League football club Wolverhampton

Wanderers, Forte Group, Fidelidade, Nanjing Nangang and Peak

Reinsurance. With its widely diversified portfolio of investments,

we believe the group has sufficient capacity to withstand geo-

graphical and cyclical risks.

Credit HighlightsIn 1H19, Fosun reported a record-high revenue of RMB 68.5 billion

(+57.4% YoY), which translated to an impressive 5-year compound-

ed annual growth rate of 16%. All three segments delivered strong

growth during the period: revenue from Health Business was RMB

16.5 billion (+17.7% YoY); the Happiness segment recorded RMB

30.9 billion of revenue (+128.1% YoY); and the Wealth segment’s

revenue was RMB 21.5 billion (+31.6% YoY). As a result, the profit

attributable to shareholders was RMB 7.6 billion, representing an

increase of 10.9% YoY.

With a current ratio of 1.10x in June, and cash over short-term bor-

rowings coverage ratio of 1.54x, we believe that the company has

enough liquidity for repaying short-term debt. The total amount of

interest-bearing debt and cash were around RMB 193 billion and

RMB 103 billion respectively in June, and translated to a manage-

able net gearing ratio of 53.3%. With the group’s strong profita-

bility, its net debt over trailing twelve month EBITDA was 1.42x

according to Bloomberg estimates, and reported interest coverage

(EBITDA over net interest expenditures) was at a decent 4.6x in

1H19, both indicating a healthy credit profile.

We believe that the management’s commitment to enhance the

overall financial profile of the company is carried out effectively, as

debt maturities are distributed quite evenly over the following five

years. The well-distributed maturity profile will provide flexibility

for the group in its budget planning and utilization of financial sur-

plus each year, without being bogged down by excessive refinanc-

ing risk due to the concentration of maturities in a single period.

RecommendationReferencing the pricings of similar bonds in the market, we think

the valuation of Fosun’s bonds are quite decent considering its

healthy credit profile relative to its double-B issuer rating. We be-

lieve the Fosun bonds provide an attractive choice for investors

who are looking for high-yield exposure with manageable risk. With-

in the FOSUNI curve, we think the FOSUNI 6.875% 31Jan2021

Corp (USD) (YTM: 4.56%) and FOSUNI 5.250% 23Mar2022 Corp

(USD) (YTM: 5.27%) offer more attractive yields relative to their

duration.

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Bond Information


Issuer Fortune Star (BVI) Limited

Guarantor Fosun International Limited


Next Call Date -



Coupon Type Fixed


Bond Sub Sector Diversified Consumer Services


Bond Credit Rating (S&P/Fitch) BB / N.R




HIGH YIELD SEEKER





4.801%

FOSUNI 5.250% 23Mar2022 Corp (USD)

Bond Information


Issuer Fortune Star (BVI) Limited

Guarantor Fosun International Limited





Coupon Type Fixed


Bond Sub Sector Diversified Consumer Services


Bond Credit Rating (S&P/Fitch) BB / N.R




HIGH YIELD SEEKER





5.482%


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FPLSP 2.500% 21Jul2021 Corp (USD) DATA AS AT 11-DEC-19

Bond Information

Issuer Frasers Property Treasury Private

Limited

Guarantor Fraser Centrepoint Limited


Next Call Date -



Coupon Type Fixed



and Development











3.032%

Background¡ A diversified property company, Frasers Property Limited (‘FPL’)

operates across five asset classes – residential, hospitality, re-

tail, commercial & business parks, and logistics and industrial

properties.

¡ Total assets in excess of S$37.6 billion (as of 30 Sep 2019), with

approximately S$10.0 billion of retail assets under management

in Singapore.

¡ The sponsor of three REITs - Frasers Centrepoint Trust, Frasers

Commercial Trust, and Frasers Logistics & Industrial Trust, and

one stapled trust - Frasers Hospitality Trust.

¡ For a long time, FPL existed as a subsidiary of the Fraser and

Neave group. Its first development was The Centrepoint, a land-

mark shopping mall in Orchard Road, Singapore.

¡ In early 2014, Fraser and Neave spun off its property operations

as Frasers Centrepoint Limited. The company would later be re-

named Frasers Property.

Credit HighlightsFor the full year ended September 2019, FPL saw its revenue de-

cline 12% YoY to S$3.8 billion. Profit before interest, fair value

change, taxation and exceptional items declined to a lesser extent,

down 3% YoY to S$1.3 billion. After accounting for minority inter-

ests, attributable profit was down 25% YoY to S$560m.

Income from REITs and other fee income are recurring in nature:

these sources accounted for more than half of the group’s EBIT. For

the full year ended September 2019, FPL saw PBIT – profit before

interest, fair value changes, taxation and exceptional items - from

recurring income sources increase 16% YoY.

As of 30 September 2019, FPL held S$3.58 billion in cash, cash

equivalents and bank deposits, up 37.8% YoY. Gearing – debt over

total assets – rose slightly from 45.9% in September 2018 to

46.2% in September 2019.

FPL’s debt maturity profile remains well staggered with an average

debt maturity of 3.0 years (30 Sep 2018: 3.3 years). The average

cost of financing has declined for the group, with the average cost

of debt on a portfolio basis coming in at 2.9%, down 0.1 ppt from

the previous year.

RecommendationGiven FPL’s excellent credit profile and robust operating metrics,

we maintain a favourable disposition towards its bonds. We par-

ticularly favour the FPLSP 4.98% Perpetual Corp (SGD), which

carries a yield to call of 4.22%.

The issue has a first call date of 11 Apr 24, and a step-up margin of

100bps applies should the issue not be redeemed by the company

after that date. The coupon is resettable on 11 Apr 24 and every

five years subsequently to the sum of the prevailing 5-year SGD

swap offer rate, the initial spread of 3.04%, and the step-up margin

of 100 bps.

The other perpetual issued by FPL that provides an attractive yield

is the FPLSP 5.000% Perpetual Corp (SGD).

Among the fixed term bonds available on the secondary market,

investors might wish to consider the FPLSP 2.500% 21Jul2021

Corp (USD), and FPLSP 4.250% 21Apr2026 Corp (SGD) issue.

In addition, investors looking for a retail bond might consider the

FPLSP 3.650% 22MAY2022 CORP (SGD) – RETAIL issue.

Frasers Property Limited

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Bond Information


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Next Call Date 22-May-2020



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2.928%

FPLSP 4.250% 21Apr2026 Corp (SGD) DATA AS AT 11-DEC-19

Bond Information


Limited



Next Call Date -



Coupon Type Fixed



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3.687%

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Reset Date: 09 Mar 2020 and every 5 years thereafterReset Rate: Prevailing SGD 5Y SOR + Initial Spread (3.015%) + 1% Coupon Step up (on 09 Mar 2025)

Reference Rate

FPLSP 5.000% Perpetual Corp (SGD)

Bond Information



Limited









and Development






HIGH YIELD SEEKER





3.337%

Reset Date: 11 Apr 2024 and every 5 years thereafterReset Rate: Prevailing SGD 5Y SOR + Initial Spread (3.040%) + Step-Up Margin (100 bps)

Reference Rate

FPLSP 4.980% Perpetual Corp (SGD)

Bond Information



Limited



Next Call Date 11-Apr-2024






and Development






HIGH YIELD SEEKER





4.244%

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FWD Group Limited

Background¡ Established in 2013, FWD Group Limited (“FWDG”) is an insurer

that offers a wide range of insurance products including life and

medical insurance. As at 30 Jun 19, the fast-growing insurer has

total assets of USD17.1 billion.

¡ A privately held organisation, FWDG is mainly owned by Mr Rich-

ard Li (75.4% deemed interest) and Swiss Re Group (13.4%).

¡ FWDG operates primarily in Southeast Asia and Japan, and seg-

ments its business mainly by the geographical markets in which

it operates.

Credit HighlightsIn 1H19, FWDG’s net premiums rose 10.8% YoY to USD1.52 billion,

mainly led by increases from its operations in Thailand (+22.4%

YoY) and Other Markets (+25.2% YoY). Net premiums in the Japan

segment weakened slightly by 3.4% to USD631.6m over the same

period. Net premiums constituted 91% of total revenue in 1H19,

which grew 13.1% YoY to USD1.67 billion.

Meanwhile, total net benefits and claims, and other operating

and administrative expenses rose 15.9% YoY and 24.7% YoY to

USD1.36 billion and USD309.0m respectively in the six months

ended June. Overall, FWDG’s loss before tax widened to USD116.2m

in 1H19 (1H18: loss of USD28.0m), mainly because of heavy expens-

es and claims incurred that outpaced revenue growth.

We are not overly concerned over the mediocre results thus far

as FWDG is still in its early phase of building its business, and we

think the relatively high expenses incurred are needed to gain

market share. Nonetheless, investors should be aware that FWDG’s

acquisition-fuelled growth may increase operational risks and the

expected benefits of acquisitions could take significant time to ma-

terialise.

On the bright side, FWDG operates with a strong balance sheet,

with reported capital adequacy ratios that were well above regula-

tory requirements. Furthermore, the substantial amount of equity

capital already invested in the firm supports our belief that the

likelihood of shareholder support in times of need is high. As at 30

Jun 19, FWDG booked USD1.82 billion of share premium, account-

ing for 85.4% of its total equity.

RecommendationThe FWDGRP 5.750% 09Jul2024 Corp (USD) have an ask yield to

maturity (“YTM”) of 4.89%, representing 325bps above five-year

US Treasuries and 140bps more than the YTM of FWD Limited’s (a

sister company sharing common shareholders) FWDINS 5% ’24s

(ask YTM: 3.49%). We think the yield pick-up of 140bps provides

a generous compensation for FWDG’s unrated status and weaker

profitability.

At its ask yield to worst of 5.91% (Z-spread: 427bps), we think the

FWDGRP 6.375% Perpetual Corp (USD) also offers a lucrative

reward for its subordinated ranking, and presents an interesting

choice for more aggressive investors. The perps are first callable

on 13 Sep 24. If not redeemed at first call, the coupon rate on the

perps will reset to the sum of the prevailing 5-year US Treasury

yield plus the initial spread of 4.876%, giving it a decent likelihood

of being redeemed at first call.


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5.983%

Reset Date: 13 Sep 2024 and every 5 years thereafter Reset Rate: Prevailing 5 year UST rate + the initial spread (4.876%)

Reference Rate

FWDGRP 6.375% Perpetual Corp (USD)

Bond Information


Issuer FWD Group Limited

Guarantor -







Bond Sub Sector Insurance




Seniority Senior Subordinated


HIGH YIELD SEEKER

FWDGRP 5.750% 09Jul2024 Corp (USD)

Bond Information


Issuer FWD Group Limited

Guarantor -


Next Call Date -



Coupon Type Fixed








HIGH YIELD SEEKER





4.941%

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Background¡ Listed on the Singapore stock exchange since 1978, GuocoLand

Limited (‘GuocoLand’) is a property development company op-

erating largely in Singapore, China, Malaysia and Vietnam.

¡ Primarily focused on property development, however the com-

pany also generates revenue from property investment and ho-

tel management.

¡ Key projects include Leedon Residence and the mixed use Tan-

jong Pagar Centre integrated development.

¡ Part of the Hong Leong Group, GuocoLand has a market capital-

ization of S$2.3 billion.

Credit HighlightsFor the first quarter ended September 2019 (“1QFY19”), top-

line revenue surged 62% to S$272.5m (1QFY18: S$168.0m), on

the back of higher progressive recognition of sales from Martin

Modern. Gross profit expanded 77% from S$50.3m in 1QFY18 to

S$88.9m for the quarter ended September 2019. Earnings be-

fore interest and taxes, excluding the share of profit of associates

and joint ventures, were S$73.1m. Earnings per ordinary share for

1QFY19 was 3.36 cents, almost double the 1.93 cents posted the

preceding year. The net asset value per ordinary share grew to

S$3.47 at the end of 1QFY19 (4QFY18: S$3.45).

Interest coverage – taken as EBIT over finance costs – improved

from 2.0x in 1QFY18 to 2.9x in 1QFY19.

Gearing – calculated by taking the ratio of debt to total assets –

edged up slightly to 44.9% at the end of September 2019 (4QFY18:

44.7%), but continues to remain at a relatively low level. Taking

the company’s outstanding perpetual securities into account,

group level gearing was 48.8%.

GuocoLand is the developer of the integrated mixed-use develop-

ment Tanjong Pagar Centre, comprised of five key elements: pre-

mium Grade A office space in Guoco Tower, a dynamic lifestyle and

F&B retail space, luxury apartments at Wallich Residence, the five-

star luxury hotel Sofitel Singapore City Centre and a 150,000 sq ft

landscaped park.

Guoco Tower provides office space for tenants seeking an exclu-

sive, prestigious address to operate from. The key selling point is

its central location — Guoco Tower is located directly above the

Tanjong Pagar MRT station. As at end-June 2019, Guoco Tower had

an occupancy rate of 100%.

GuocoLand is also the developer of Wallich Residence, which rose

to prominence after British billionaire James Dyson acquired a unit

within the development.

RecommendationWith an established track record and decent credit metrics, we are

of the opinion that investors open to exposure to the real estate

sector should consider GuocoLand bonds. Of particular interest

is the GUOLSP 4.600% Perpetual Corp (SGD) issue — which has

a first call date in January 2023 — and carries a yield to call of

3.76%. If the note is not redeemed on its first call date, the coupon

will reset in January 2025 (two years after the first call date) and

every seven years thereafter, to the sum of the 7-year SGD swap

offer rate, the initial spread of 260.9 basis points (‘bps’), plus a

step-up margin of 100 bps.

Investors looking for a fixed term note might wish to focus their

attention on GuocoLand’s GUOLSP 4.000% 31Jan2022 Corp

(SGD) issue, which matures in January 2022 and carries a yield to

maturity of 3.27%.

GuocoLand Limited


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GUOLSP 4.000% 31Jan2022 Corp (SGD)

Bond Information


Issuer GLL IHT Private Limited

Guarantor GuocoLand Limited


Next Call Date -



Coupon Type Fixed



and Development











3.337%

Reset Date: 23 Jan 2025 and every 7 years thereafter Reset Rate: Prevailing SGD 7Y SOR + Initial Spread (2.609%) + 100bps Distribution Step-Up

Reference Rate

GUOLSP 4.600% Perpetual Corp (SGD)

Bond Information


Issuer GLL IHT Private Limited

Guarantor GuocoLand Limited


Next Call Date 23-Jan-2023






and Development






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3.761%

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GGRSP 4.750% 25Jan2021 Corp (SGD)

Bond Information


Issuer Golden Assets International

Investment Private Limited

Guarantor Golden Agri-Resources Limited


Next Call Date -



Coupon Type Fixed


Bond Sub Sector Food Products






HIGH YIELD SEEKER





8.136%


Golden Agri-Resources Ltd

Background¡ Golden Agri-Resources Ltd (“GAR”) is Indonesia’s largest palm

oil plantation company.

¡ Listed on the Singapore Exchange with a market cap of S$2.87

billion as at 11 Dec 19.

¡ The firm’s businesses span two segments, namely its upstream

business in plantation and palm oil mills, and downstream oper-

ations in palm, laurics, and others.

¡ The Widjaja family, among Indonesia’s wealthiest, is GAR’s larg-

est shareholder and has a deemed interest of about 50% of the

company’s shares.

Credit HighlightsIn the quarter ended September (“3Q19”), total revenue dropped

15% to USD1.56 billion from a year ago as lower crude palm oil

(“CPO”) prices weighed on the firm’s performance. Gross profit de-

clined 32% YoY to USD188m while EBITDA — defined as earnings

before interest, taxes, depreciation and amortization, fair value

changes of biological assets, foreign exchange gains/losses and

exceptional items — dropped 19% to USD107m in the quarter.

Despite the drop in revenue and EBITDA, GAR’s swung from a net

loss of USD53m to a net profit of USD6m in 3Q19, on the back of a

34% drop in selling expenses and 5% decline in general & admin-

istrative expenses. In addition, foreign exchange gains and other

operating income, which mainly comprised of fair value changes

of biological assets, contributed to the positive bottom line for the

third quarter.

Gearing increased slightly with the debt-to-total assets ratio

climbing from 35% in 4Q18 to 37% in 3Q19. The higher gearing was

largely due to an increased debt load. Our measure of total debt —

the sum of short-term and long-term borrowings, bonds and notes

payables — expanded from USD3.01 billion at the end of December

to USD3.13 billion in September.

We think GAR has a decent liquidity profile considering that the

firm may liquidate its tangible short-term assets to meet its

short-term obligations. According to our estimates, the firm held

USD1.46 billion of tangible assets made up of USD143m of cash

and cash equivalents, USD370m of short-term investments and

USD950m of inventories. In aggregate, Golden Agri recorded

USD2.67 billion of current assets and USD2.61 billion of current

liabilities in 3Q19, translating to a modest current ratio of slightly

more than 1.0x in 3Q19.

The company’s cash flows improved in the nine-month period

ended September (“9M19”), notwithstanding a drop in net oper-

ating cash flow (“net CFO”) to USD95m in 3Q19 from USD191m in

3Q18. Overall, net CFO in 9M19 nearly doubled to USD305m from

USD153m in 9M18.

RecommendationGolden Agri’s credit strength remains at a satisfactory level

despite the slight rise in gearing during 2019. Relative to other

high-yield SGD credits, we think the market is ascribing a valuation

that is too punitive on the GGRSP 4.750% 25Jan2021 Corp

(SGD), which is indicating at an ask YTM of 6.80%. As a reference,

Olam International Limited’s (3Q19 debt/asset: 48%) OLAMSP 6%

‘22s are yielding 3.85%. While we acknowledge that Olam has a

significantly more diversified business and enjoys good access to

capital markets, we think the GGRSP 4.75% ‘21s offer good value

at their spread of 606bps above SGD swaps.

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Heeton Holdings Limited

Background¡ A real estate company headquartered in Singapore, Heeton

Holdings Limited (“Heeton”) focuses on property development,

investment, and management.

¡ Listed on the SGX in 2003 and has a market capitalization of

approximately S$150m.

¡ Maintains a global presence across Thailand, Australia, Japan,

Malaysia, Vietnam, and the UK.

¡ Owns a diversified hospitality property portfolio that includes

Luma London and Crowne Plaza London Kensington.

Credit HighlightsHeeton is an asset-rich company with ample cash resources and

property holdings. As of end September 2019, the company had

S$107.7m in cash and cash equivalents, up 43.6% YoY. Heeton also

has a significant amount of property and land assets. Excluding de-

velopment properties, the company had S$550.0m worth of land

and investment properties as of 30 September 2019. Development

properties included, this figure rises to S$583.2m.

Its current ratio, measured as the ratio of current assets over cur-

rent liabilities, was 1.37x in September 2019 (31 December 2018:

1.32x). The group’s cash ratio, defined as cash and cash equivalents

divided by current liabilities, stood at 0.80x (31 December 2018:

0.60x).

Heeton is conservatively geared in so far as the property develop-

ment space is concerned. Its gearing ratio, defined as total debt

over total assets, was 46.9% as of end September 2019 (Dec 2018:

37.9%). About a quarter of its debt matures within a year.

Heeton’s secured borrowings amounted to S$291.3m in Septem-

ber 2019 while the company aggregate carrying value of its land

and property assets (excluding development properties) was

S$550.0m. This translates to an implied loan to value ratio of 53%.

In August 2019, Heeton announced that Mr Eric Teng would be

stepping down as Chief Executive of the firm. He was replaced by

Mr Toh Giap Eng, Vince - Executive Deputy Chairman – who as-

sumes the responsibilities of the Chief Executive while the group

searches for Teng’s replacement.

A month later, Heeton announced the appointment of Mr Hoh Chin

Yiep as Chief Operating Officer of the Company. Hoh assumed the

said role on 14 October 2019.

RecommendationWe are of the opinion that Heeton is a company that investors

should consider including in their portfolios. Our confidence stems

from Heeton’s healthy balance sheet and a good track record es-

tablished over the years.

We like Heeton’s HTONSP 6.080% 19July2021 Corp (SGD). In

comparison with Chip Eng Seng’s CHIPEN 4.75% ‘21s, which yield

in the 5% range, the HTONSP 6.08% ‘21s yield of approximately

6.54% appears to be more attractive at the moment. Besides, Chip

Eng Seng is more highly geared than Heeton, with a debt-to-asset

ratio in excess of 50%.

Investors looking for bonds with a shorter tenure may wish to con-

sider Heeton’s HTONSP 6.100% 08May2020 Corp (SGD) (ask

YTM: 5.33%).

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HTONSP 6.100% 08May2020 Corp (SGD)

Bond Information


Issuer Heeton Holdings Limited

Guarantor -


Next Call Date -



Coupon Type Fixed



and Development






HIGH YIELD SEEKER





7.142%

HTONSP 6.080% 19July2021 Corp (SGD)

Bond Information


Issuer Heeton Holdings Limited

Guarantor -


Next Call Date -



Coupon Type Fixed



and Development






HIGH YIELD SEEKER





7.190%


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Background¡ Hotel Properties Limited (“HPL”) is an owner and operator of

hotels with strong hospitality brands names in various locations.

The group has interests in 34 hotels under brands including

Four Seasons, InterContinental Hotels Group, and Hilton Inter-

national. Additionally, the company manages its own portfolio

of hotels under brands such as Hard Rock Hotels and Concorde

Hotels & Resorts.

¡ Founded in 1980, HPL is listed in Singapore with a market cap

of S$1.93 billion as of 11 Dec 19. The two largest shareholders in

the company are Mr Ong Beng Seng (with a deemed interest of

38.3%) and Wheelock and Company Limited (deemed interest

of 22.5%).

¡ The firm’s business activities include hotel ownership, manage-

ment and operation, property development, and investment

holding.

Credit HighlightsIn the quarter ended September (“3Q19”), HPL swung to a net loss

of S$2.4m from a net profit of S$20.4m a year ago due to low-

er contributions from the group’s share of profits from joint ven-

tures and associates. However, total revenue grew to S$134m from

$130m in the same period, resulting from stronger performance of

its Bali hotels in Indonesia. Looking ahead, management expects

higher hospitality revenue in 4Q19 as the fourth quarter is tradi-

tionally a holiday season for travellers.

The company’s cash position dropped to S$88m in the third quar-

ter, down from S$98m in 2Q19. At this level, the amount of cash

was insufficient to meet its short-term borrowings of S$257m.

Total current assets and current liabilities added to S$360m and

S$427m respectively in 3Q19, placing the firm in a negative work-

ing capital position.

Nevertheless, HPL intends to refinance its borrowings to alleviate

its debt burden. According to the group’s 3Q19 filing, most of its

short-term borrowings were eligible for refinancing. The firm also

raised S$160m through a perpetual note offering in October that

would help to lift its liquidity profile.

Cash flows on the other hand are healthy. Net cash flows from op-

erating activities (“CFO”) increased to S$49m in 3Q19, up from

S$40m in 3Q18. Free cash flow, defined as net CFO minus capi-

tal expenditures, more than tripled to S$21m in the third quarter

mainly due to lower spending on property, plant, and equipment.

HPL’s level of indebtedness is within an acceptable range in our

opinion. The proportion of total debt (including perpetual securi-

ties) to total assets increased to 32% in 3Q19 from 26% a year

ago. With a debt-to-asset ratio of 32%, we think the company’s

debt burden is reasonable among hotel operators.

RecommendationCompared with other SGD credits in the same sector, we think the

HPLSP 4.650% Perpetual Corp (SGD) is attractively priced at

a YTW of 4.16%. The HPLSP 4.65% perp is first callable in May

2022, which coincides with the first reset date. In addition, we also

like the HPLSP 3.850% 27May2021 Corp (SGD), a senior unse-

cured bond with a yield to maturity of 2.83%. The bond had a rel-

atively high yield compared to other notes along the HPLSP curve.

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HPLSP 4.650% Perpetual Corp (SGD)

Bond Information


Issuer Hotel Properties Limited

Guarantor -



Years to Next Call (Approx.) 2,400










HIGH YIELD SEEKER





4.246%

HPLSP 3.850% 27May2021 Corp (SGD)

Bond Information


Issuer Hotel Properties Limited

Guarantor -


Next Call Date -



Coupon Type Fixed













3.100%

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Background¡ British multinational banking and financial services company

established in 1865.

¡ A banking franchise that serves more than 39 million customers

through four global businesses: Retail Banking and Wealth Man-

agement, Commercial Banking, Global Banking and Markets, and

Global Private Banking.

¡ Shares in HSBC Holdings plc (“HSBC”) are held by around

200,000 shareholders in 130 countries and territories.

¡ Market capitalization: ~GBP 117.1 billion.

Credit HighlightsHSBC stands out amongst its peers with some of the most robust

credit metrics. For the quarter ended September 2019, the bank

reported a common equity tier 1 (CET1) ratio 14.3%, one of the

highest levels observed within the financial sector and unchanged

from the previous quarter. The group’s total capital ratio improved

0.1 ppt to 20.2% (June 2019: 20.1%) while the group’s liquidity cov-

erage ratio was unchanged QoQ at 136%. The liquidity coverage

ratio is the value of highly liquid assets over the bank’s total net

cash flows over a 30-day stress testing period.

Its strong capital position notwithstanding, HSBC is currently fac-

ing a challenging operating environment, with lower profits in cer-

tain regions within continental Europe and the United States. For

the quarter ended September, total reported revenue was down

3% YoY to USD 13.4 billion with profit after tax down 16% YoY to

USD 3.80 billion. Asia was a bright spot for the bank, with reported

profit before tax in Asia up 4% to USD 4.7 billion.

In response to the bank’s recent performance, HSBC group CFO

Ewen Stevenson has announced his intention to restructure the

bank’s US and UK businesses, and streamline its group operating

structure to cut costs. The bank is expected to rebalance its capital

away from low return businesses and review its restructuring plan

in early 2020.

RecommendationIn our view, the lackluster operating performance of HSBC is tran-

sitory in nature, and most likely reflects the cyclical nature of the

industry itself. Our continued confidence in HSBC stems from its

excellent capital position and established track record. Besides,

HSBC’s banking franchise benefits from an impeccable reputation,

a key asset which we believe has distinguished the institution from

its peers. We are also encouraged by its singular focus on main-

taining strong cost discipline and high capital ratios.

We strongly recommend the HSBC 4.700% Perpetual CORP

(SGD), which carries a yield to call of 3.96%. The issue has a first

call date of 8 Jun 22. Should the issue not be redeemed on first

call, the coupon rate will reset on that date and every five years

thereafter to the 5-year SGD swap offer rate (“SOR”) plus 2.87%.

We also recommend the HSBC 5.000% Perpetual CORP (SGD).

The bond has a first call date of 24 Sep 23 and provides a yield to

call of 4.26%. Should the issue not be redeemed on the first call

date, the coupon rate will reset on that date and every five years

subsequently to the prevailing 5-year SGD SOR plus 2.665%.

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Bond Information


Issuer HSBC Holdings PLC

Guarantor -










Issuer Credit Rating (S&P/Fitch) A / AA-








4.282%

Reset Date: 08 Jun 2022 and every 5 years thereafterReset Rate: Prevailing SGD 5Y SOR + Initial Spread (2.870%)

Reference Rate

HSBC 4.700% Perpetual Corp (SGD)

Bond Information


Issuer HSBC Holdings PLC

Guarantor -










Issuer Credit Rating (S&P/Fitch) A / AA-


Issue Size SGD 1,000,000,000






4.000%


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Reset Date: 20 Apr 2022 and every 5 years thereafter Reset Rate: Prevailing SGD 5Y SOR + Initial Spread (3.915%)

Reference Rate

BAERVX 5.750% Perpetual Corp (SGD)

Bond Information


Issuer Julius Baer Group Limited

Guarantor -


















4.215%

Background¡ A Swiss private banking group whose origins date back to 1890.

¡ Headquartered in Zurich, with offices in key locations including

Dubai, Frankfurt, Geneva, Hong Kong, London, Luxembourg,

Milan, Monaco, Montevideo, Moscow, Mumbai, Singapore and

Tokyo.

¡ Clientele consists of sophisticated private clients and family

offices across the globe.

¡ Market capitalization of CHF 10.7 billion.

Credit HighlightsDespite weaker global economic conditions and political tensions

resulting from the US-China trade dispute, Julius Baer posted solid

financial results for the first half of 2019. Half-yearly operating in-

come came in at CHF 1.7 billion, down 5.0% YoY but up 7.6% com-

pared to the second half of 2018. With half-yearly adjusted oper-

ating expenses of CHF 1.2 billion, profit before tax for the first half

of 2019 was CHF469.8m (1H18: CHF582.7m; 2H18: CHF394.4m).

For the first six months of 2019, the bank reported a cost-to-in-

come ratio of 71.0%, a significant improvement from the 74.3%

figure reported for the second half of 2018. In terms of profitabil-

ity, Julius Baer posted an annualized return on tangible equity of

25% in the period, some 3 percentage points higher than the 22%

posted for the six months ended December last year.

For the first half of this year, Julius Baer continued to maintain an

excellent solvency profile. Its BIS core equity tier 1 (‘CET1’) ratio

was 13.1%, up 30 bps from the 12.8% reported in December 2018.

Julius Baer makes most of its money through commission and fee

income derived from its suite of private banking services. For the

first half of 2019, a full CHF955.9m, or 56.3% of operating income

was categorized as net commission and fee income. Commission

and fee income is especially valuable and important to a bank like

Julius Baer. The value of this income lies in its recurring nature,

and its intrinsic attribute of bearing lower correlation with mac-

roeconomic factors, as compared to other sources of income for

a bank.

30.3% of total operating income came from net interest and divi-

dend income. Net trading income made up 11.6% of the bank’s ag-

gregate operating income.

Julius Baer maintains an exceedingly conservative debt profile,

with an overwhelming proportion of debt bearing no maturity i.e.

they are perpetual. Of the CHF 1.88 billion in total debt issued,

only CHF325.5m (carrying value) bears a fixed maturity date. It is

this conservative profile that leads us to be positively predisposed

towards Julius Baer bonds.

RecommendationAt this juncture, perpetual securities issued by Julius Baer ap-

pear to be attractively priced. In particular, we favour the BAERVX

5.750% Perpetual Corp (SGD) issue, which appears to be more at-

tractively priced vis-à-vis the bank’s other notes.

The BAERVX 5.750% Perpetual Corp (SGD) issue has a first call

date of 20 Apr 22 and has a YTC of 4.24%. The yield is decent for a

private bank with a conservative balance sheet. Moreover, with just

2.4 years before the first call date, investors can strike a balance

between mitigating reinvestment risk and duration risk.

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Background¡ A Straits Times Index constituent, Keppel Corporation Limited

(“Keppel Corp”) has a market capitalization value of S$12.2 bil-

lion and a book equity value of S$11.5 billion as of September

2019.

¡ A Singapore-based conglomerate with a number of business

arms including offshore & marine, property, infrastructure, and

investments.

¡ Temasek Holdings (Private) Limited, Singapore’s sovereign

wealth fund, is the company’s largest shareholder with a share-

holding of 20.45%.

Credit HighlightsKeppel Corp reported a 60% YoY gain in revenue to S$2.1 billion

during the three months ended September (“3Q19”). Depreciation

and amortization expenses, a non-cash item, surged 144% YoY to

S$105m resulting in a net profit of S$165m in 3Q19, down from

S$229m in 3Q18.

Nonetheless, we are not too concerned about the drop in profit as

Keppel Corp is a well-diversified conglomerate that operates sev-

eral business units with recurring incomes. These income streams

come from investment properties held under its portfolio of REITs

and business trusts, including Keppel REIT, Keppel-KBS US REIT,

and Keppel Infrastructure Trust.

Excluding lease liabilities, the group’s aggregate leverage ratio

(debt over total assets) increased from 27% in 3Q18 to 35% in

3Q19. Total debt climbed to S$10.80 billion, up from S$6.85 bil-

lion a year ago, outpacing the rate of growth in total assets from

S$25.60 billion to S$30.83 billion. Subtracting cash from total

debt and including lease liabilities, we find the group’s net debt at

S$10.05 billion.

Even though gearing was significantly higher, Keppel Corp is able

to tap on its large tangible asset base that should help to reduce

refinancing risk. The group’s S$1.35 billion of cash and cash equiv-

alents, together with its S$5.54 billion of inventories (composed

largely of held-for-sale properties), should help it tide over its

S$4.26 billion of near-term maturities.

We think Keppel Corp would be able to maintain its financial health

in the foreseeable future, in spite of the increase in gearing and

working capital requirements. Additionally, we feel that the group

should continue to enjoy good access to capital markets with Te-

masek as a controlling shareholder.

RecommendationThe bonds of Sembcorp Industries Ltd (“SCI”) provide a good pric-

ing reference for the KEPSP curve. SCI is also a Singapore-based

conglomerate operating in many of the same areas (O&M, property

development, and utilities), although it has a less diversified busi-

ness profile with most of its revenue coming from the energy and

marine sectors. Among credits in the industrial space, we would

prefer the KEPSP curve over the SCISP curve, as SCI had a higher

credit risk.

Within the KEPSP curve, we prefer the S$300m KEPSP 3.800%

23Apr2027 Corp (SGD) with an ask yield to worst of 2.55%. If

the bond is not redeemed on its first call date of 23 Apr 22, the

coupon rate would increase from 3.8% to 4.2%. We also like the

shorter-dated KEPSP 3.100% 12Oct2020 Corp (SGD) that offers

a yield to maturity of 2.10%, representing a decent return for a

remaining maturity of less than a year.

Keppel Corporation Limited


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KEPSP 3.100% 12Oct2020 Corp (SGD)

Bond Information


Issuer Keppel Corp Limited

Guarantor -

Maturity Date 12-Oct-2020

Next Call Date -



Coupon Type Fixed


Bond Sub Sector Industrial Conglomerates











2.252%

KEPSP 3.800% 23Apr2027 Corp (SGD)

Bond Information


Issuer Keppel Corp Limited

Guarantor -





Coupon Type Fixed













2.680%

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Lippo Malls Indonesia Retail Trust

Reset Date: 19 Dec 2022 and every 5 years thereafterReset Rate: Prevailing SGD 5Y SOR + Initial Spread (4.755%)

LMRTSP 6.600% Perpetual Corp (SGD)

Bond Information


Issuer Lippo Malls Indonesia Retail Trust

Guarantor -


Next Call Date 19-Dec-2022








Issuer Credit Rating (S&P/Fitch) N.R / BB



HIGH YIELD SEEKER

Reference Rate





8.062%


Background¡ LMIRT is a REIT that invests in retail and retail-related assets

in Indonesia, and its portfolio comprises of 23 retail malls and

seven retail spaces located within other retail malls.

¡ PT Lippo Karawaci Tbk is the sponsor and biggest shareholder

of LMIRT (~32% stake).

¡ The REIT is rated ‘Ba3’ and ‘BB’ with stable outlooks by Moody’s

and Fitch respectively.

Credit HighlightsLMIRT reported an overall positive set of results for the nine

months ended September, supported by stable portfolio perfor-

mance, a recovering IDR (+0.8% YoY against SGD as at 30 Sep

19), and improvement on rental collections. Net property income

increased slightly by 1.6% YoY to S$128.6m in 9M19 (9M18:

S$126.6m). The REIT booked a net reversal of allowance for doubt-

ful debts of S$1.9m in 3Q19, versus a net allowance of S$2.1m in

3Q18, which contributed to the decrease in other property operat-

ing expenses to S$6.6m in 9M19 (9M18: S$8.7m).

The trend in trade receivables also indicated better collections

on rental payments, as trade and other receivables dropped from

S$40.5m to S$38.9m in the nine months ended September. Subse-

quent to September, LMIRT has collected approximately S$7.6m of

receivables. The REIT maintains that sponsor lessees of the Lippo

group of companies have never missed any rental payments.

Finance expenses rose 18.0% YoY to S$29.9m in 9M19 (9M18:

S$25.4m), following the issuance in June of USD250m 7.25%

notes due 2024, which carried substantially higher interest rate

than the loans that were repaid with the bond proceeds. Oth-

er losses shrank to just S$1.6m in 9M19 (9M18: S$8.6m), mostly

because of favorable foreign exchange movements, and LMIRT’s

total income before tax expanded 4.8% YoY to S$85.9m (9M18:

S$82.0m). Overall, the REIT’s interest coverage (EBIT over finan-

cial expenses) reduced from 4.2x in 9M18 to 3.9x in 9M19.

Meanwhile, LMIRT’s total borrowings increased from S$680.0m to

S$729.2m in the nine months ended September, while its reported

gearing ratio was up marginally from 34.6% to 34.7%. Including

the REIT’s S$260m of perpetual securities, we note that its adjust-

ed gearing ratio actually improved from 47.8% to 47.1% over the

same period, although the figure is still high relative to most other

Singapore REITs.

RecommendationDespite their price rally over the past year, LMIRT’s LMRTSP

7.000% Perpetual Corp (SGD) (YTW: 7.868%), and LMRTSP

6.600% Perpetual Corp (SGD) (YTW: 7.866%) are still the high-

est-yielding bonds in the SGD REIT sector. We acknowledge the

substantial extension risk (the risk of a non-call) on the perps as

indicated, for instance, by their lower initial spreads versus that of

the new USD notes due 2024 (reoffer yield: 7.5%). However, yields

on the LMRTSP 7.25% ‘24s have plunged since their issuance,

and we think there is a good chance that LMIRT would be able

to refinance the perps at reasonable cost. In any case, we believe

at current bond valuations, investors are fairly compensated for

the perps’ extension risk. The LMRTSP 4.100% 22Jun2020 Corp

(SGD) also looks interesting at its YTM of 4.489%, with just about

six months to maturity.


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LMRTSP 7.000% Perpetual Corp (SGD)

Bond Information


Issuer Lippo Malls Indonesia Retail Trust

Guarantor -










Issuer Credit Rating (S&P/Fitch) N.R / BB



HIGH YIELD SEEKER

Reset Date : 27 Sep 2021 and every 5 years thereafterReset Rate : Prevailing SGD 5Y SOR + Initial Spread (5.245%)

Reference Rate





8.121%

LMRTSP 4.100% 22Jun2020 Corp (SGD)

Bond Information


Issuer LMIRT Capital Pte Limited

Guarantor Lippo Malls Indonesia Retail Trust


Next Call Date -



Coupon Type Fixed








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6.560%

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LOGPH 6.125% 16Apr2021 Corp (SGD)

Bond Information


Issuer Logan Property Holdings Co Limited






Coupon Type Fixed



and Development


Bond Credit Rating (S&P/Fitch) N.R / BB

Issuer Credit Rating (S&P/Fitch) BB / BB



HIGH YIELD SEEKER





4.767%


Logan Property Holdings Company Limited

Background¡ Logan Property Holdings Company Limited (“Logan Property”)

is a Chinese property developer founded in 1996. The company

is publicly listed in Hong Kong with a market capitalization of

HKD66.4 billion as at 11 Dec 19.

¡ The company focuses on residential property development in

China, mainly in the Guangdong-Hong Kong-Macao Greater Bay

Area (“GBA”), and has a total land bank of 35.9m square meters

(as of end-June).

¡ Logan Property is rated ‘BB’ by S&P and Fitch and ‘Ba3’ by

Moody’s. Moody’s has a positive outlook on the issuer, while S&P

and Fitch have stable outlooks on their ratings.

Credit HighlightsLogan Property reported strong growth in 1H19, with revenue up

78% YoY to RMB27.0 billion (1H18: RMB15.1 billion). Gross profit

increased 67% YoY to RMB9.4 billion, which translated to a high

gross profit margin of 35%.

Logan Property became the top Shenzhen developer in sales last

year. Contracted sales increased 28% YoY to RMB45.3 billion in

1H19, driven mainly by developments in the GBA. In the first six

months of this year, the company achieved 53% of its 2019 sales

target of RMB85 billion. Contracted sales are a key indicator of

future revenue, suggesting that Logan Property may continue to

report higher top-line growth, which is not unlikely considering the

company’s strong track record of sales execution and reputation

as a fast-growing residential property developer.

The company has ample cash resources and a strong liquidity pro-

file. At the end of June 2019, Logan recorded RMB34.4 billion of

cash and cash equivalents, sufficient to cover its short-term debt

of RMB11.1 billion. Free cash flow more than doubled from ~RMB4.5

billion in 2018 to ~RMB10.4 billion in the trailing twelve months to

June, driven by significantly higher operating cash flows and low

capital spending.

The group’s credit profile remained healthy as its interest cover-

age and gearing ratios stayed nearly unchanged. Relative to its as-

sets, Logan has a modest amount of debt on its balance sheet. Its

gearing ratio, defined as total debt as a percentage of total assets,

maintained at 34% in 1H18 and 1H19.

Logan Property’s ability to pay its interest expense, represented

as earnings before interest and taxes over interest expense, fell

slightly from 4.8x to 4.5x in the same period. In our view, the de-

cline is insubstantial as the company’s interest coverage is close to

its 2017 level of 4.6x. We think Logan is able to keep a stable credit

profile moving forward with its continued revenue momentum and

liquidity.

RecommendationThe LOGPH 6.125% 16Apr2021 Corp (SGD) offers some of the

best value in the SGD-denominated property developer credit

sector. The bond matures in less than 1.5 years but is callable at

a redemption price of 103.063 on or after 16 Apr 20. At their ask

YTM of 4.42%, we think the LOGPH 6.125% ‘21s are attractive

compared to other SGD high-yield alternatives in the property

sector, given Logan’s large operating scale and high earnings

visibility.

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Background¡ Manulife Financial Corporation (“MFC”) is a Canadian insurer

with an operating history of over 100 years.

¡A constituent member of the S&P/TSX 60 Index with a huge

market capitalisation of CAD49.6 billion.

¡ Well diversified by geography, products, and distribution chan-

nels, MFC has more than 34,000 employees serving almost 28

million customers worldwide.

¡ MFC has CAD1.2 trillion of assets under management and ad-

ministration as of 3Q19.

¡ MFC is rated ‘A’ and ‘A-’ by S&P and Fitch respectively. Its main

operating entity, The Manufacturers Life Insurance Company

(“MLI”), has financial strength rating of ‘AA-’, ‘A1’, and ‘AA-’ by

S&P, Moody’s, and Fitch respectively.

Credit HighlightsMFC’s results in 3Q19 were overall steady and the group continued

to achieve a strong set of capital ratios. Core earnings fell 2% YoY

to CAD1.5 billion in 3Q19, as lower new business volumes in Ja-

pan and earnings impact from actions taken to improve the capital

efficiency of legacy businesses overshadowed business growth in

Asia. Core return on equity therefore contracted slightly to 13.0%

from 14.8% in 3Q18.

Meanwhile, MFC’s expense efficiency ratio inched slightly upwards

to 51.4% in 3Q19 (3Q18: 49.5%). Per MFC, the group is on track to

deliver expense efficiencies of CAD700m pre-tax in 2019 and tar-

gets to improve its efficiency ratio to below 50% by 2022.

The group has a solid set of capital ratios and exhibits strong capi-

tal management. Its main operating company, MLI, reported a Life

Insurance Capital Adequacy Test (“LICAT”) ratio of 146% in 3Q19,

up from 144% in 2Q19. The stronger LICAT at MLI was primarily

driven by favourable impact from lower risk-free rates and capital

initiatives.

MFC’s LICAT ratio similarly improved to 136% from 133% over the

same period. Both reported LICAT ratios sit well above Canada’s

regulatory minimum requirement of 90%, and indicate that MFC

has sufficient cushion to pay off liabilities after meeting its obli-

gations to policyholders. The company also reported a better fi-

nancial leverage ratio of 26.1%, down from 26.4% in the previous

quarter. The positive impact of earnings and higher values of avail-

able-for-sale securities, partially offset by the impact of dividend

payments and the net impact from share buybacks and dividend

reinvestment programs, contributed to the improvement in finan-

cial leverage ratio.

MFC maintains a high quality investment portfolio to ensure the

sustainability of its investment income. It manages a diversified

asset portfolio of CAD380.1 billion that mainly comprises of various

types of fixed income instruments, alternative long-duration

assets, and public equities. More than 84% of the portfolio are

fixed income securities, of which 98% are investment-grade

holdings.

RecommendationIn view of MFC’s strong credit profile, we recommend the MFCCN

3.850% 25May2026 Corp (SGD) (first call date: 25 May 21). The

bonds are indicating at an ask YTW of 2.32%, representing spreads

of 80bps over SGD swaps. They are rated ‘A-’ and ‘BBB+’ by S&P

and Fitch respectively, and offer attractive yields relative to MFC’s

solid capital position and strong investment-grade issuer profile.

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MFCCN 3.850% 25May2026 Corp (SGD)

Bond Information


Issuer Manulife Financial Corporation

Guarantor -









Bond Credit Rating (S&P/Fitch) A- / BBB+

Issuer Credit Rating (S&P/Fitch) A / A








2.468%


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Background¡ MCT is a SGX-listed REIT (market cap: S$7.7 billion as at 11 Dec

19) that holds a portfolio of income-producing real estate in Sin-

gapore across the retail, office, and business park segments.

The REIT owned five properties as at September, with a total

appraised value of S$7.35 billion.

¡ The sponsor, Mapletree Investments Pte Ltd (“MIPL”), is a

leading real estate firm headquartered in Singapore and 100%

owned by Temasek Holdings (Private) Limited. Mostly through

its ownership of MIPL, Temasek has a deemed interest of 33.18%

in MCT as at 29 Nov 19.

Credit HighlightsMCT continued to deliver steady results in the six months ended

September (“1HFY20”), driven by higher contributions from all

properties except Mapletree Anson. Total revenue and net property

income (“NPI”) were up 2.6% YoY and 2.2% YoY at S$224.2m and

S$176.1m.

Robust performance at MCT’s flagship property, VivoCity, was

the main growth driver. Following the progressive opening of

new stores including NTUC FairPrice, VivoCity’s revenue and NPI

increased 5.1% YoY and 4.5% YoY to S$103.6m and S$83.3m

respectively in 1HFY20. This was partly offset by weaker results

at Mapletree Anson, which recorded a slide of 14.3% YoY in NPI to

S$11.4m. Results from Mapletree Anson should gradually recover

in the quarters ahead, given that its committed occupancy of

99.0% was much higher than the actual occupancy rate of 75.1%.

Finance expenses increased 3.0% YoY to S$35.6m in 1HFY20

(1HFY19: S$34.6m), in line with slightly higher weighted average

borrowing cost of 3.00% as at 2QFY20 (2QFY19: 2.93%) and

total debt outstanding over 1HFY20 versus previous year’s

corresponding period. Nonetheless, MCT’s steady earnings

performance helped to maintain its EBIT (excluding fair value gains

on investment properties) over finance expenses at a healthy 4.5x

(1HFY19: 4.5x). Other credit metrics were also healthy, with the

reported gearing ratio declining from 33.1% to 31.7% in the six

months ended September, mostly due to the increase in property

values to S$7.35 billion (31 Mar 19: S$7.04 billion).

In September, MCT announced the acquisition of Mapletree

Business City (Phase 2) from MIPL at an agreed property value

of S$1.55 billion. To finance the deal, which was completed in

November, the REIT undertook an equity fund raising exercise

that raised approximately S$918.5m. We view the acquisition as

credit positive, as it will improve significantly MCT’s earnings and

asset diversification, and NPI is expected to grow 22.2%, while we

estimate that its gearing ratio would increase to just 33.6%.

RecommendationMCT’s (Moody’s: Baa1) bonds look mostly fairly priced relative

to other investment-grade REIT credits such as CapitaLand

Commercial Trust (S&P: BBB+; Moody’s: Baa2) and CapitaLand

Mall Trust (Moody’s: A2), providing reasonable value. Within the

MCTSP curve, we continue to prefer notes in the intermediate

range of duration, including the MCTSP 3.250% 03Feb2023

Corp (SGD) (YTM: 2.42%) and MCTSP 3.280% 23Sep2024 Corp

(SGD) (YTM: 2.58%). As a reference, CCT’s CCTSP 2.77% ‘22s and

CMT’s CAPITA 3.48% ‘24s are indicating at ask YTMs of 2.32%

and 2.44% respectively.

Mapletree Commercial Trust (“MCT”)

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DATA AS AT 11-DEC-19MCTSP 3.280% 23Sep2024 Corp (SGD)

Bond Information

Issuer Mapletree Commercial Trust

Treasury Co Private Limited

Guarantor Mapletree Commercial Trust

Maturity Date 23-Sep-2024

Next Call Date -



Coupon Type Fixed



and Development











2.639%

DATA AS AT 11-DEC-19MCTSP 3.250% 03Feb2023 Corp (SGD)

Bond Information

Issuer Mapletree Commercial Trust

Treasury Co Private Limited

Guarantor Mapletree Commercial Trust


Next Call Date -



Coupon Type Fixed



and Development











2.498%

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Background¡ Mapletree Industrial Trust (“MIT”) is a real estate investment

trust (“REIT”) that invests in a portfolio of industrial real estate,

data centres, and other real-estate related assets.

¡ As at 30 Sep 19, the REIT’s property portfolio was made up of

87 industrial properties in Singapore and 14 US-based data cen-

tres, and its total assets under management were S$4.8 billion.

The portfolio stretched across five different property types in-

cluding flatted factories, stack-up buildings, hi-tech buildings,

light industrial buildings, and business park buildings.

¡ The trust is sponsored and majority owned by Mapletree Invest-

ments Pte Ltd (“MIPL”), which has a 32% stake in MIT (as of

May 2019). MIPL is in turn indirectly wholly owned by Temasek

Holdings.

¡ Fitch Ratings has assigned an investment-grade credit rating of

‘BBB+’ to MIT.

Credit HighlightsIn its second financial quarter ended 30 Sep 19 (“2QFY20”), MIT’s

net property income grew 13.3% YoY to S$80m on the back of a

10.5% YoY gain in revenue. This was due to higher occupancies

in the business park buildings, flatted factories, and 30A Kallang

Place. Borrowing costs were 10.0% higher than the corresponding

quarter last year due to the recognition of interest cost in relation

to 7 Tai Seng Drive. In spite of higher borrowing costs, MIT recorded

a net profit of S$64m for the quarter, up 13.8% from 2QFY19.

After the increase in net property income, MIT’s interest coverage

ratio climbed to 6.6x in 2QFY20 from 6.4x in 2QFY19. According

to the REIT, the weighted average all-in funding cost also dropped

to 2.9% from 3.0% over the same period.

Occupancy rates in the portfolio were excellent as they exceeded

the 90% level as at 2QFY20. The occupancy rate among US data

centre especially, stayed at 97.4%. Additionally, the REIT has a

diversified tenant base across various trade sectors, and no single

trade sector accounted for more than 21% of gross rental income.

There is also a healthy tenant retention rate in the REIT as 64.5%

of the tenants have leased the properties for more than 4 years.

The retention rates varied across different building types. Hi-

tech and light industrial buildings had a retention rate of 100% in

2QFY20, exceeding the 80% average for the portfolio.

MIT’s leverage profile improved in the recent quarter as the

aggregate leverage ratio, which included the proportionate share

of borrowings of joint ventures and deposited property values, fell

to 29.2% in 2QFY20 from 35.1% in 2QFY19. During the quarter,

MIT repaid some of its borrowings with proceeds from its equity

fund raising exercise. The amount of outstanding debt position

decreased to S$1.25 billion with a weighted average debt tenor of

4.2 years.

RecommendationWe like the MINTSP 3.020% 11May2023 Corp (SGD) as it offers

one of the better value among other SGD notes due 2023. The

bond is reasonably priced at its YTM of 2.44% for an approximate

3.4-year tenor. As a pricing reference, Ascendas REIT’s AREIT

2.47% ‘23s are yielding 2.38%. Investors looking for longer-dated

bonds may also consider the MINTSP 3.160% 28Mar2024 Corp

(SGD) (YTM: 2.60%).

Mapletree Industrial Trust

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MINTSP 3.020% 11May2023 Corp (SGD)

Bond Information


Issuer Mapletree Industrial Trust Treasury

Co Private Limited

Guarantor Mapletree Industrial Trust


Next Call Date -



Coupon Type Fixed



and Development


Bond Credit Rating (S&P/Fitch) N.R / BBB+









2.525%

MINTSP 3.160% 28Mar2024 Corp (SGD)

Bond Information


Issuer Mapletree Industrial Trust Treasury

Co Private Limited

Guarantor Mapletree Industrial Trust


Next Call Date -



Coupon Type Fixed



and Development


Bond Credit Rating (S&P/Fitch) N.R / BBB+









2.643%

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Background¡ Mapletree Logistics Trust (“MLT”) is a SGX-listed real estate in-

vestment trust (“REIT”) with a portfolio of income-producing

Asian logistics properties. The company was publicly listed in

2005 with an initial portfolio of 15 Singapore properties.

¡ Since then, the REIT has expanded its portfolio to 137 proper-

ties with S$8.0 billion of assets under management. Among its

real estate assets, the REIT has 52 properties that are located

in Singapore, 20 in China, 16 in Japan, 14 in Malaysia and 12 in

South Korea.

¡ The REIT’s sponsor is Mapletree Investments Pte Ltd (“MIPL”),

an indirect wholly-owned subsidiary of Temasek Holdings (Pri-

vate) Limited. MIPL held a deemed interest of ~32% in MLT as

at 31 May 19.

¡ MLT was rated Baa2 by Moody’s Investors Service with a stable

outlook on the credit rating.

Credit HighlightsIn the second financial quarter ended September (“2QFY20”),

MLT’s gross revenue and net property income staged strong

double-digit gains, having increased by 14% YoY and 21% YoY to

S$122m and S$109m respectively. This was largely attributed to

greater contributions from the Hong Kong portfolio and completed

developments in China. Property expenses declined on the

recognition of lower land rent (due to the adoption of SFRS(I) 16)

and portfolio divestments, while borrowing costs increased 26%

YoY to S$21m.

The management was somewhat cautious about the outlook for its

exposures in Singapore and Hong Kong as customers are cautious

and slower to commit to long leases. In view of the uncertain

economic outlook, the REIT’s manager will proactively manage the

portfolio. On that note, the REIT has hedged 83% of its total debt

into fixed-rate payments, while also hedging 80% of its property

income for the next 12 months into SGD.

MLT’s portfolio occupancy had maintained at a high level of 97.5%

in 2QFY20, nearly at the same level of 97.6% a year ago. The

average rental reversion reached 1.8% in the second financial

quarter, up from 1.3% in 2QFY19. In addition, the weighted average

lease expiry of the portfolio increased to 4.6 years in September,

up from 3.8 years in 2QFY19.

The REIT’s credit profile improved as its aggregate leverage ratio

dropped from 38.1% a year ago to 37.0% in 2QFY20. On the other

hand, MLT’s average debt duration declined from 4.3 years to 3.7

years, and its reported interest cover ratio, defined as EBITDA over

interest expense, fell marginally from 5.1x to 5.0x over the same

period.

RecommendationWe like the MLTSP 4.180% Perpetual Corp (SGD) (ask YTW:

3.31%) and MLTSP 3.650% Perpetual Corp (SGD) (ask YTW:

3.39%) as they offer decent value in the SGD REIT credit sector.

As a reference, Ascott Residence Trust’s (Fitch issuer rating: BBB)

ARTSP 3.88% perp, which has a longer first call date of September

2024, is indicating at an ask YTW of 3.54%. The MLTSP 4.18%

perp and MLTSP 3.65% perp are first callable in November 2021

and March 2023 respectively.

Mapletree Logistics Trust

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Reset Date: 25 Nov 2021 and every 5 years thereafter Reset Rate: Prevailing SGD 5Y SOR + Initial Spread (230bps)

Reference Rate

MLTSP 4.180% Perpetual Corp (SGD)

Bond Information


Issuer Mapletree Logistics Trust

Guarantor -


















3.420%

Reset Date : 28 Mar 2023 and every 5 years thereafterReset Rate : Prevailing SGD 5Y SOR + the Initial Spread (1.815%)

Reference Rate

MLTSP 3.650% Perpetual Corp (SGD)

Bond Information


Issuer Mapletree Logistics Trust

Guarantor -


















3.400%

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Background¡ Hong Kong-centric retail and office REIT with a portfolio of

prime property developments in HK, China, and Japan.

¡ Fourth REIT sponsored by Mapletree Investments Pte Ltd, which

fully owns the REIT Manager, Mapletree North Asia Commercial

Trust Management Ltd.

¡ Festival Walk is the REIT’s flagship property in Hong Kong, ac-

counting for slightly more than 60% of total revenue. Other key

property assets include Gateway Plaza in Beijing and Sandhill

Plaza in Shanghai.

Credit HighlightsFor 1H FY19/20, Mapletree North Asia Commercial Trust (‘MNACT’)

saw its gross revenue increase 5.7% YoY to S$210.4m, while net

property income rose 5.8% YoY to reach S$169.8m. Accordingly,

the REIT saw its distributable income grow 5.3% YoY to S$123.8m.

MNACT’s robust results were underpinned by high occupancy

rates across its properties, integration of revenue from its recently

acquired Japan properties and the continued strength of the Hong

Kong dollar against the Singapore dollar. As the bulk of MNACT’s

revenue is derived from Festival Walk in Hong Kong, much of the

REIT’s revenue is in HKD.

For the quarter ended September, MNACT reported an interest

coverage ratio of 4.2x, down slightly from the 4.3x posted in March

2019. Interest coverage ratio is defined as profit before income

tax not taking into account net finance costs, foreign exchange

differences, depreciation and changes in fair value of derivatives

and investment properties, and over net finance costs.

The average term to maturity for debt was 3.21 years, versus 3.70

years recorded in March this year. The proportion of debt with fixed

interest costs was 89%, compared to 86% reported in March 2019.

MNACT’s cornerstone property is Festival Walk in Hong Kong, from

which the REIT derives more than 60% of its revenue. At the end

of the quarter ended September 2019, Festival Walk recorded an

occupancy rate of 100% and achieved positive rental reversions of

12% and 6% for its retail and office components.

Festival Walk sustained extensive damage in November after anti-

government protestors went on a rampage in the mall, as violent

protests roiled the city. Glass panels on various levels of the mall

were smashed, while the property’s Christmas tree was set ablaze.

The extensive damage prompted the mall’s management to close

the property to evaluate the damage caused.

In so far as MNACT’s credit quality is concerned, we see little cause

for disquiet. Festival Walk is covered by insurance for damages and

loss of income. Furthermore, most of its rental income revenue

comes from base rent. Turnover rent accounts for less than 5% of

its total revenue.

RecommendationAmong MNACT’s outstanding bonds, we favour its near-term

issues: the MAGIC 3.200% 08Sep2021 Corp (SGD) and the

MAGIC 3.430% 09Mar2022 Corp (SGD); these issues yield

2.30% and 2.31% respectively. While there are other issues that

trade further out on the curve, the nearer term notes offer better

value in terms of yield at this current juncture.

Mapletree North Asia Commercial Trust

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MAGIC 3.200% 08Sep2021 Corp (SGD)

Bond Information


Issuer Mapletree North Asia Commercial

Treasury Co HKSAR Limited

Guarantor Mapletree North Asia Commercial

Trust


Next Call Date -



Coupon Type Fixed



and Development











2.448%

MAGIC 3.430% 09Mar2022 Corp (SGD)

Bond Information


Issuer Mapletree North Asia Commercial

Treasury Co HKSAR Limited

Guarantor Mapletree North Asia Commercial

Trust


Next Call Date -



Coupon Type Fixed



and Development











2.411%

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CMA CGM S.A. (Parent of Neptune Orient Lines)

Background¡ Neptune Orient Lines Limited (“NOL”) is a container shipping

company headquartered in Singapore. Operating primarily

through the APL brand, NOL offers container transportation

services in the world’s major trade lanes.

¡ CMA CGM—the fourth largest container liner globally by capaci-

ty—acquired the company in 2016.

¡ As a private subsidiary, APL/NOL’s publicly available financial

results are limited. We will therefore refer primarily to CMA

CGM’s financials as a proxy for NOL’s performance.

Credit HighlightsCMA CGM’s operating performance improved in the nine months

ended September, with strong top-line growth of 32.3% YoY to

USD 22.73 billion. The acquisition of CEVA contributed the bulk of

the revenue growth. Excluding the transaction, a 5.3% YoY growth

in shipping volumes pushed revenue higher by 2.5% YoY.

Profitability was also gradually recovering, with adjusted EBITDA

jumping 245% YoY to USD 2.74 billion in 9M19. Adjusting for the

CEVA acquisition and impact from IFRS 16 implementation, adjust-

ed EBITDA was up 18% YoY at USD 939.4m. As a result, the adjust-

ed EBITDA margin for shipping activity (excluding IFRS 16 impact)

climbed from 4.7% in 9M18 to 5.3% in 9M19. The management

attributed the improved operational performance to their cost cut-

ting program, which had already achieved 73% completion.

CMA CGM’s total borrowings stood at USD 19.71 billion as at

end-September. Financial liquidity seemed to have tightened, with

short-term borrowings of USD 4.14 billion against just USD 1.35

billion of group liquidity (USD 1.27 billion of available cash and USD

86.3m of undrawn committed credit facilities.

However, CMA CGM has shared a detailed disposal and liquidity

enhancement plan, which should raise USD 2.08 billion of liquidity,

extend the group’s debt maturity profile, and reduce its net debt by

more than USD 900m. Under the plan, CMA CGM undertook ves-

sel sale and leaseback (“S&LB”) transactions totaling USD 860m,

with USD 550m already completed as of September. CMA CGM

also revealed that it was in the process of selling ten port termi-

nals to Terminal Link, a 51:49 joint venture between the group and

China Merchant Ports, for USD 968m.

Putting aside USD 1.86 billion of lease liabilities and USD 141.6m of

securitized loans, which we assume would be essentially covered

by operating cash flow, CMA CGM had around USD 2.14 billion of

refinancing needs in the upcoming year. The firm had disclosed its

refinancing and repayment plans for its near-term debt maturities.

Essentially, CMA CGM had planned to repay USD 757m of its 2020

maturities, including the S$280m NOLSP 4.65% notes, and refi-

nance or roll over the remaining maturities.

RecommendationWith the immediate enhancement of liquidity expected from the

disposal and refinancing transactions, we continue to like the

NOLSP 4.650% 09Sep2020 Corp (SGD) (ask YTM: 11.2%). The

NOLSP 4.400% 22Jun2021 Corp (SGD) also looks interesting

with its YTM of 15.9%, though investors should bear in mind

headwinds facing the container shipping industry—new sulfur-cap

regulations, slowing global growth, and trade tensions.

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NOLSP 4.400% 22Jun2021 Corp (SGD)

Bond Information


Issuer Neptune Orient Lines Limited/

Singapore

Guarantor -


Next Call Date -



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Bond Sub Sector Marine






HIGH YIELD SEEKER





19.697%

NOLSP 4.650% 09Sep2020 Corp (SGD)

Bond Information


Issuer Neptune Orient Lines Limited/

Singapore

Guarantor -


Next Call Date -



Coupon Type Fixed


Bond Sub Sector Marine






HIGH YIELD SEEKER





13.258%


FSMONE.COM

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Background¡ A real estate developer and landlord with a portfolio comprising

of mainly hotel, commercial, and retail properties, located most-

ly in Singapore.

¡ Listed on the SGX with a market capitalisation of S$1.5 billion.

¡ OUE held an equity stake of ~48% in OUE Commercial REIT

(“OUE C-REIT”) subsequent to the latter’s merger with OUE

Hospitality Trust (“OUE-HT”).

¡ The Riady family and Mr Kin Chan (chairman of TIH Limited)

are majority shareholders of OUE, together controlling about

68.6% of the company’s shares.

Credit HighlightsIn 3Q19, OUE’s revenue was up 54.1% YoY to S$282.5m, mainly

led by growth in the development properties division. The segment

recorded S$133.9m of revenue during the quarter (+207% YoY),

with most of the increase coming from the sale of the property

development at 26A Nassim Road, which was disposed for S$95m

to OUE’s Executive Chairman Dr Stephen Riady.

During the quarter, OUE recorded S$81.7m of share of results of

equity-accounted investees, up significantly from S$9.8m in 3Q18.

The increase was mainly due to inclusion of contribution from

Gemdale Properties and Investment Corporation Limited. During

the year, OUE acquired additional equity interest in Gemdale to

bring its stake up to 27.9%. Thanks to the profit contribution from

Gemdale, OUE’s operating profit surged 59.7% YoY to S$90.4m.

OUE reported a one-off item of S$75.4m in other gains from de-

recognition of right-of-use assets and lease liabilities during the

quarter, which were related to merger effects from the merger

between OUE-HT and OUE C-REIT. This non-cash item sent profit

before tax significantly higher to S$143.6m (3Q18: S$12.7m).

We estimated adjusted EBIT (excluding other gains/losses) at

S$97.8m in 3Q19, which covered about 2.5x of interest expenses,

improved from 1.7x in 3Q18 and despite finance costs climbing

11.4% YoY to S$39.3m. The increase in finance costs were, however,

due to the adoption of accounting standards that required the

recognition of amortisation of lease liabilities as finance expenses,

and borrowing costs actually fell 5.7% YoY to S$33.1m.

OUE’s net debt over equity rose to 0.65x in 3Q19 (4Q18: 0.60x).

Out of OUE’s total borrowings of S$4.21 billion (4Q18: S$3.50

billion), S$989.4m would come due within the next twelve months.

Liquidity seemed tight if we compared the short-term obligations

with cash balance of S$262.0m.

Increased debt load aside, we are still comfortable with OUE’s

liquidity position given expected cash receipts from the fully-sold

OUE Twin Peaks in the near future (book value of development

properties was S$206m in 3Q19). OUE could also receive potential

liquidity boost from its planned sale of US Bank Tower (4Q18

valuation: S$893.6m), as well as proceeds from the disposal

of serviced apartments at OUE Downtown for an aggregate

consideration of S$289m (completed in November).

RecommendationWithin the OUE curve, we like the OUESP 3.750% 17Apr2022

Corp (SGD) that is currently indicating at an ask YTM of 3.24%.

The OUESP 3.550% 10May2023 Corp (SGD) (YTM: 3.38%) offers

a decent yield pick-up of ~14bps against the shorter-dated OUESP

3.75% ’22s, which we think is a fair compensation for its ~1 year

longer tenure.

OUE Limited

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OUESP 3.750% 17Apr2022 Corp (SGD)

Bond Information


Issuer OUE Treasury Private Limited

Guarantor OUE Limited


Next Call Date -



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and Development











3.384%

OUESP 3.550% 10May2023 Corp (SGD)

Bond Information


Issuer OUE Treasury Private Limited

Guarantor OUE Limited


Next Call Date -



Coupon Type Fixed



and Development











3.480%

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OHLSP 5.150% 18May2020 Corp (SGD) - Retail

Bond Information


Issuer Oxley MTN Private Limited

Guarantor Oxley Holdings Limited


Next Call Date -



Coupon Type Fixed



and Development






HIGH YIELD SEEKER





3.610%

Oxley Holdings Limited

Background¡ Oxley Holdings Limited (“Oxley”) is an international property

developer that has launched a portfolio of 38 projects since its

incorporation in 2010.

¡ Oxley is listed on the Singapore stock exchange with a market

cap of S$1.48 billion (as at 11 Dec 19). The firm owns the Novotel

and Mercure hotels on Stevens Road, Singapore, and an approx-

imate 10% interest in Aspen (Group) Holdings Limited.

Credit HighlightsOxley’s revenue in the first financial quarter ended September

(“1QFY20”) grew 66% YoY to S$283m (1QFY19: S$170m), mainly

due to higher revenue contribution from developments in Singa-

pore and the Royal Wharf project in the UK. Financing costs in-

creased 21% YoY primarily due to increased borrowings to finance

the group’s Singapore development projects, advances to joint

ventures, and additions to an investment property.

Profit before tax (“PBT”) nearly quintupled to S$18m in 1QFY20

from S$3.6m in 1QFY19. However, we noted that PBT included

S$33m of “other gains”, which mainly related to a revaluation gain

of an investment property in Cambodia and mark-to-market net

gains in derivative financial instruments.

Nonetheless, we think Oxley has a decent earnings profile in view

of the company’s healthy sales progress in its development pro-

jects. Since 2018, 66% of Oxley’s residential units in Singapore,

which constituted more than half of the total gross development

value (“GDV”) of the company’s Singapore projects, had been sold.

The group’s development portfolio had a total estimated GDV of

S$23.5 billion as at 28 Oct 29, of which it had already secured

S$7.5 billion of sales. Its attributable unbilled contracts of S$2.3

billion provided substantial earnings visibility going forward.

Oxley’s net debt over equity remained elevated at 2.25x in 1QFY20,

albeit lower from 2.27x in FY2018. Furthermore, the developer’s

S$1.45 billion of short-term borrowings exceeded its cash balance

of S$449m at the end of September.

However, we think that Oxley will be able to meet its short-term

maturities and improve its credit metrics considerably in the near

future. The management has already laid out their debt repayment

plans until 2023, and made it clear that they intend to deleverage.

Recent actions taken provide high credibility in our opinion that

the firm is serious in cutting down its credit risk.

Oxley likely refinanced and extended the maturity of S$525m of in-

vestment property loan. Subsequent to 1QFY20, the group should

have collected proceeds from the sale of Dublin Landings Block

A4 and A5 together with the sale of its ~19% stake in United En-

gineers Limited. By the end of 2020, the firm should receive funds

from the sale of its Cambodian residential units and remaining

sales consideration from the sale of Chevron House.

RecommendationIn our view, Oxley bonds are attractively priced in the real estate

sector. We like the OHLSP 5.150% 18May2020 Corp (SGD) -

Retail (YTM: 1.30%), OHLSP 5.700% 31Jan2022 Corp (SGD)

(YTM: 6.54%), and OHLSP 6.375% 21Apr2021 Corp (USD) (YTM:

7.42%). Keeping in mind the company’s improved credit profile, we

think the OHLSP bonds still provide good risk-reward opportunities.

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OHLSP 5.700% 31Jan2022 Corp (SGD)

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and Development






HIGH YIELD SEEKER





7.481%

OHLSP 6.375% 21Apr2021 Corp (USD)

Bond Information





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and Development






HIGH YIELD SEEKER





8.226%


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PREHSP 4.550% 29Apr2020 Corp (SGD) - Retail

Bond Information


Issuer Perennial Real Estate Holdings

Limited

Guarantor -


Next Call Date -



Coupon Type Fixed



and Development






HIGH YIELD SEEKER





4.688%

Perennial Real Estate Holdings Limited

Background¡ Perennial Real Estate Holdings Limited (“Perennial”) is a health-

care and integrated real estate company. Its property portfolio

comprises of offices, retail spaces, and healthcare facilities that

are located in Singapore and China. Some of its iconic proper-

ties include the AXA Tower, CHIJMES, Capitol Singapore, and

TripleOne Somerset.

¡ Investments in associates and joint ventures constitute a signif-

icant part of the company’s portfolio (32% of total assets as of

end-September), including several healthcare and commercial

integrated developments connected to high-speed railway sta-

tions in China, and its eldercare and senior housing business

unit in China, Renshoutang.

¡ Perennial is sponsored by Kuok Khoon Hong, Ron Sim, Wilmar

International, and Pua Seck Guan, who collectively hold an ef-

fective ownership of 82.4% in the company (as of end-June).

Credit HighlightsPerennial’s revenue jumped 64.9% YoY to S$91.2m in the nine

months ended September (9M18: S$55.3m), mainly due to con-

tributions from Capitol Singapore (consolidated since May 2018)

and Perennial International Health and Medical Hub (“PIHMH”; of-

ficially opened in June 2018), as well as the sale of a unit in Eden

Residences. Excluding other income (mostly disposal and fair value

gains), we estimated that Perennial’s adjusted EBIT jumped 52.7%

YoY to S$46.9m (9M18: S$30.7m).

However, Perennial’s adjusted EBIT was still insufficient to cover

S$87.7m of net finance costs in 9M19 (9M18: S$58.6m). Net fi-

nance costs were significantly higher as Perennial incurred a high-

er weighted average interest rate of 4.0% (9M18: 3.8%), took on

additional loans to fund new investments, and started to expense

PIHMH’s interest expenses upon completion of the project.

Total borrowings increased 4.2% from S$2.94 billion to S$3.06

billion in the nine months ended September. The reported net

debt-to-equity ratio rose correspondingly from 0.72x to 0.77x over

the same period.

More worryingly, Perennial faced a refinancing wall of S$1.09

billion over the next year, while its cash was just S$99.6m as of

end-September. Although S$68m out of S$76m due in 4Q19 had

been refinanced, the company still had to tackle S$1.31 billion of

maturities in 2020, including S$560m of bonds.

Nonetheless, we believe management is focused on deleveraging

and refinancing short-term maturities. In October, Perennial fully

divested its 32.5% effective equity stake in Yanlord Investment

(Singapore) Pte Ltd for S$202.7m.

While the transaction is still insufficient to pay off near-term debt,

we take comfort that Perennial has taken constructive steps to ad-

dress its refinancing wall. The company has indicated the intention

to sell its 31.2% interest in AXA Tower, which should fetch a good

price given the buoyant office market in Singapore. Also, Perennial

should be able to monetize most of its S$3.3 billion of investment

properties if needed.

RecommendationGiven that Perennial has taken proactive actions to improve its

credit metrics, we continue to see value in the company’s bonds,

which offer relatively attractive yields in the SGD real estate

sector. The PREHSP 4.550% 29Apr2020 Corp (SGD) - Retail,

PREHSP 3.850% 03Jul2020 Corp (SGD), and PREHSP 3.900%

12Jan2021 Corp (SGD) are offering YTMs of 3.36% (based on

exchange price), 7.09%, and 8.87% respectively.

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PREHSP 3.900% 12Jan2021 Corp (SGD)

Bond Information


Issuer Perennial Real Estate Holdings

Limited

Guarantor -


Next Call Date -



Coupon Type Fixed



and Development






HIGH YIELD SEEKER





9.490%

PREHSP 3.850% 03Jul2020 Corp (SGD)

Bond Information


Issuer Perennial Treasury Private Limited

Guarantor Perennial Real Estate Holdings

Limited


Next Call Date -



Coupon Type Fixed



and Development






HIGH YIELD SEEKER





9.476%

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Background¡ Established in 1988, Ping An Insurance (Group) Company of

China, Ltd (“Ping An”) is one of the largest financial services

provider in China. Its businesses include insurance, banking,

healthcare, and asset management, conducted across a num-

ber of subsidiaries including Ping An Life, Ping An Property &

Casualty, and Ping An Bank.

¡ Ping An is listed in Hong Kong and Shanghai with a market capi-

talization of RMB1.7 trillion as of 13 Dec 19. The Financial Stabil-

ity Board and the International Association of Insurance Super-

visors have identified Ping An as one of the Global Systemically

Important Insurers.

Credit HighlightsPing An continued to deliver strong results in 2019 amid a

burgeoning insurance sector in China. Operating profit rose 21.0%

YoY to RMB116.0 billion in the nine months ended September, led

by a 30.5% YoY growth in the group’s core life and health insurance

business. During the period, Ping An adjusted its product portfolio

to shift its sales focus toward high-value, high-protection products.

Consequently, new business value (“NBV”) of the life and health

insurance business climbed 4.5% YoY to RMB58.8 billion, mainly

due to a 5.3 percentage-point improvement in the NBV margin to

48.1%.

Ping An’s property and casualty insurance business has a decent

capital buffer. The division’s core solvency margin ratio improved

to 217.0% in 3Q19 from 201.5% in 4Q18. The strong capital buffer

suggests that Ping An has the financial strength to withstand the

cyclical nature of the property and casualty insurance business. In

addition, its life insurance business (Ping An Life), likewise reported

a higher core solvency margin ratio of 224.9% (4Q18: 212.2%).

Ping An’s investment income grew by almost three times to

RMB76.9 billion in 9M19 from RMB26.6 billion a year earlier. The

group achieved the strong result even as it strengthened asset and

risk management during the period, increasing allocation to tax-

exempt bonds and long-duration low-risk bonds. According to its

3Q19 results filing, the firm also narrowed the duration gap between

assets and liabilities for better asset/liability management.

Revenue from Ping An’s banking subsidiary grew 18.8% YoY

to RMB103.0 billion, supported by its retail transformation.

Meanwhile, Ping An Bank’s net profit rose 15.5% YoY to RMB23.6

billion, reflecting a higher net interest margin of 2.62% (9M18:

2.29%). The bank has a healthy capital position, with its core tier 1

capital adequacy ratio (“CAR”) and tier 1 CAR improving to 9.75%

(4Q18: 8.54%) and 10.54% (4Q18: 9.39%) respectively in 3Q19.

RecommendationWe like Ping An’s PINGLI 2.875% 19Jan2021 Corp (USD) (YTM:

2.62%) and PINGIN 4.375% 10Sep2023 Corp (USD) (YTM: 3.03%)

as they are reasonably priced against other insurance credits in

our view. For instance, Prudential PLC’s 6.75% Sep’23s and AIA’s

3.125% Mar’23s are yielding 2.33% and 2.43% respectively. The

yield pick-ups from Ping An’s aforementioned bonds represent

a good compensation for Ping An’s lack of a global scale credit

rating, which is mitigated by its strong capital position and large

operating scale.

Ping An Insurance (Group) Company of China, Limited

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PINGLI 2.875% 19Jan2021 Corp (USD)

Bond Information


Issuer Ping An Life Insurance Co of China

Limited

Guarantor -


Next Call Date -



Coupon Type Fixed













2.640%

PINGIN 4.375% 10Sep2023 Corp (USD)

Bond Information


Issuer Vigorous Champion International

Limited

Guarantor China Ping An Insurance Overseas

Holdings Limited


Next Call Date -



Coupon Type Fixed













3.053%

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CTRAIJ 4.850% 20Sep2021 Corp (SGD)

Bond Information


Issuer Ciputra Development Tbk PT

Guarantor -


Next Call Date -



Coupon Type Fixed



and Development


Bond Credit Rating (S&P/Fitch) N.R / BB-

Issuer Credit Rating (S&P/Fitch) N.R / BB-



HIGH YIELD SEEKER





4.901%

PT Ciputra Development Tbk

Background¡ PT Ciputra Development Tbk (“Ciputra”) is one of Indonesia’s

largest property developers by assets. The group has developed

over 75 projects in 33 cities across the country, with a majority

of its portfolio in the Greater Jakarta and Greater Surabaya re-

gions.

¡ With an overall land bank of 2,334 hectares, the group has suf-

ficient land to implement real estate developments for at least

another 15 years.

¡ Having survived the Asian Financial Crisis, the firm has accu-

mulated more than 30 years of experience in the Indonesian

property business.

Credit HighlightsIn the nine months till September 2019 (“9M19”), the group’s over-

all revenue was slightly lower than a year ago at IDR4.66 trillion.

Gross and operating profits also fell slightly to IDR2.26 trillion and

IDR1.13 trillion, although both gross profit and operating profit mar-

gins continued to remain high at 49% and 24% respectively.

Ciputra’s pre-sales declined from IDR5.15 trillion in 9M18 to

IDR4.15 trillion in 9M19. In spite of the drop in pre-sales, we think

the firm will recognise a greater proportion of recurring revenue

moving forward. Recurring revenue accounted for 30% of total

revenue in 9M19, up from 23% in full-year 2018. The developer’s

recurring revenue had improved from IDR1.28 trillion in 9M18 to

IDR1.38 trillion in 9M19 due to higher hospital patient volume and

new contribution from Tokopedia Care Tower. The three shopping

malls that are presently under construction, CitraRaya Tangerang,

CitraLand Surabaya and Ciputra World Surabaya should lift recur-

ring revenues in future.

In support of the group’s healthy liquidity profile, Ciputra’s cash

level of IDR3.24 trillion was more than sufficient to cover its short-

term maturities of IDR1.41 trillion. Total debt rose from IDR8.35

trillion to IDR8.91 trillion in the twelve months ended September,

although the debt-to-total capital ratio was stable at 34% in 3Q19

(3Q18: 34%). In addition, the group’s current assets have climbed

to a level more than twice that of its current liabilities at the end

of September.

Ciputra’s borrowing cost including capitalized interest had been

on a downtrend. In 2014, borrowing cost increased to 12.7%, but

had since declined over the last 5 years, falling to as low as 10.2%

at the end of 2018. Most borrowings were pegged to IDR floating

rates, while 21% of debt was denominated in Singapore dollar. Most

of these SGD borrowings comprised of the S$150m CTRAIJ 4.85%

‘21s, of which the principal Ciputra had hedged at IDR12,520/SGD.

RecommendationThe macro environment in Indonesia is favourably set as interest

rates could drop and interest rate-sensitive plays such as property

developers, could continue to outperform. Consequently, we see

value in Ciputra’s SGD bond. The CTRAIJ 4.850% 20Sep2021

Corp (SGD) had a yield to maturity of 4.52% as of 11 Dec 19. We

prefer the CTRAIJ 4.85% ’21 over bonds of Ciputra’s peers such as

Lippo Karawaci and Bumi Serpong, as the latter two issuers have

weaker credit quality in our opinion.

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Ronshine China Holdings Limited

Background¡ Ronshine was founded in 2003 in Fujian as a Chinese real estate

developer. The company is listed on the HKEX with a market

cap of about HKD 17.4 billion (as of 11 Dec 2019). It ranked 32nd

among all Chinese developers in terms of 1H19 contracted sales.

Credit HighlightsRonshine’s development projects are concentrated in first- and

second-tier cities. In 2018, Hangzhou (2nd tier) and Shanghai (1st

tier) contributed over 50% of the company’s total sales.

Ronshine also mainly develops high-end residential buildings. In

2018, the average selling price (“ASP”) of its sales reached RMB

21,672 per sqm. According to GuanDian data, only 12 of the top

100 developers in China managed to achieve the RMB 20,000/sqm

mark. Furthermore, 12 of the top developers recorded ASPs below

RMB 10,000/sqm, and have their projects distributed in third- to

fifth-tier cities.

In 1H19, Ronshine delivered mediocre sales performance. Attrib-

utable contracted sales were RMB 34.5 billion (1H18: RMB 38.9

billion), representing a 12.8% YoY drop. However, the company

bounced back recently, having achieved contracted sales of RMB

13.5 billion and RMB 15.0 billion in September (+83.2% YoY) and

October (+20.8% YoY) respectively.

In 1H19, Ronshine recorded a revenue of RMB 26.6 billion, up

86.3% YoY. The core profit attributable to shareholders was RMB

1.96 billion, representing a 26.0% YoY growth.

As of 30 Jun 19, the total book value (at cost) of land reserve at-

tributable to Ronshine was RMB 66.3 billion, and approximately

60% of the land bank was located in prime areas of first- and sec-

ond-tier cities. Ronshine’s land reserve was quite large relative to

the company’s operating scale, and we believe that the sizeable

land bank should help Ronshine to remain resilient under the cur-

rent contractionary funding environment.

As of June, the company was holding a cash balance of RMB 31.9

billion, which was 1.66x more than its short-term debt. The re-

ported net gearing ratio improved from 105% to 77% in the six

months ended June, primarily attributable to a private placement

of shares in April 2019 that raised ~RMB 1 billion. We believe that

Ronshine’s ability to meet its short-term financial obligations re-

mains adequate.

Ronshine’s financial discipline had been recognized by major rating

agencies. In 2019, Moody’s and S&P upgraded the company’s issu-

er ratings to ‘B1’ (from ‘B2’) and ‘B+’ (from ‘B’) respectively.

RecommendationThe valuation of Ronshine’s bonds seems fair to us when compared

to their peers in the B-to-BB- range. Taking into account Ronshine’s

recent deleveraging efforts, we think the RONXIN bonds are

offering attractive yields. Within the RONXIN curve, we would

recommend the RONXIN 8.250% 01Feb2021 Corp (USD) (YTM:

6.89%) and RONXIN 10.500% 01Mar2022 Corp (USD) (YTM:

7.49%).

RONXIN 10.500% 01Mar2022 Corp (USD)

Bond Information


Issuer Ronshine China Holdings Limited



Next Call Date -



Coupon Type Fixed



and Development



Issuer Credit Rating (S&P/Fitch) B+ / BB-

Seniority Secured


HIGH YIELD SEEKER





7.603%



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RONXIN 8.250% 01Feb2021 Corp (USD)

Bond Information


Issuer Ronshine China Holdings Limited



Next Call Date -



Coupon Type Fixed



and Development



Issuer Credit Rating (S&P/Fitch) B+ / BB-

Seniority First Lien


HIGH YIELD SEEKER





7.233%

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Background¡ Sembcorp Industries Ltd (“SCI”) is a Singapore-based industrial

conglomerate with three main business segments namely ener-

gy, marine, and urban development.

¡ Listed on the SGX Mainboard and sported a market cap of S$4.0

billion.

¡ Temasek Holdings (Private) Limited is the company’s largest

shareholder with a shareholding of 49.5% (as at 31 Mar 19).

¡ Owns a 61% stake (as of March 2019) in SGX-listed Sembcorp

Marine Ltd, which operates the group’s offshore and marine en-

gineering business.

Credit HighlightsIn 9M19, SCI’s revenue fell 20.0% YoY to S$7.30 billion mainly due

to poor performance in the marine segment, which continued to

turn in operating loss (9M19: S$54m) as lower business volume

and loss upon the sale and delivery of certain rigs detracted from

performance. SCI is expecting the trend of losses in the marine

segment to continue into the fourth quarter, and for full-year loss-

es to be higher than last year.

Meanwhile, revenue from the energy segment fell 3% to S$4.81

billion. The energy segment remained as the group’s profit anchor,

reporting profit from operations (“PFO”) of S$687m, up 6% YoY.

The segment PFO was higher despite lower turnover, thanks to im-

provement in its operations in Myanmar, Bangladesh, China, and

India. The urban segment contributed S$31m of PFO, down 47%

from S$59m in 9M18 due to the absence of commercial and resi-

dential land sales in China.

Despite substantially lower revenue, SCI’s profit before tax was

overall steady at S$317m (-2% YoY), which from our observations

was primarily due to a 23% YoY decline in cost of sales. Report-

ed EBITDA excluding major non-cash items (e.g. fair value ad-

justments) was S$1.05 billion in 9M19 (9M18: S$854m). Although

reported EBITDA rose 22.0% YoY, finance costs also increased

24.0% YoY to S$440.0m. As a result, SCI’s interest coverage ratio

(EBITDA over finance costs) was flattish at 2.4x in 9M19 (9M18:

2.4x).

As at 30 Sep 19, SCI’s net debt over equity rose marginally to 1.14x

(4Q18: 1.11x), even though total debt was largely unchanged at

S$10.74 billion (4Q18: S$10.73 billion). A decrease in SCI’s cash bal-

ance from S$1.93 billion to S$1.70 billion in 9M19 led to the slight

deterioration in net gearing, as the company spent S$696m in cap-

ital expenditures related to property, plant, equipment, and invest-

ment properties. Treating the company’s perpetual securities as

debt, we find adjusted net gearing at 1.38x (4Q18: 1.35x).

RecommendationWe are positive on the SCISP 4.750% Perpetual Corp (SGD),

which is first callable on 20 May 20 and offers a YTW of 3.04%

(Z-spread: 147bps). The distribution reset date is 20 May 25 (and

every ten years thereafter), when the distribution rate will reset

to the sum of the prevailing ten-year SGD SOR and a reset spread

of 311 basis points. Even if we assume conservatively that SCI will

redeem the perps only in May 2025, we think the yield to reset of

4.65% provides a good compensation for the extension risk and

the perps’ subordinated ranking. Among SCI’s straight bonds, we

see value in the SCISP 4.250% 30Aug2025 Corp (SGD), which

offers a YTM of 3.17% (Z-spread: 160bps).

Sembcorp Industries Limited

SCISP 4.250% 30Aug2025 Corp (SGD)

Bond Information


Issuer Sembcorp Financial Services

Pte Limited

Guarantor Sembcorp Industries Limited

Maturity Date 30-Aug-2025

Next Call Date -



Coupon Type Fixed













3.228%


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Reset Date: 20 May 2025 and every 10 years thereafter Reset Rate: Prevailing SGD 10Y SOR + Initial Spread (2.11%) + Step-Up Margin (100bps)

Reference Rate

SCISP 4.750% Perpetual Corp (SGD)

Bond Information


Issuer Sembcorp Industries Limited

Guarantor -


















3.248%


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Background¡ Commenced operations since 1972, Singapore Airlines Limited

(“SIA”) is Singapore’s national carrier that serves 137 destina-

tions in 37 countries and territories.

¡ A constituent of the Straits Times Index, SIA has a market cap-

italisation of S$10.8 billion as at 13 Dec 19.

¡ Besides operating under its eponymous flagship carrier, SIA

also fully owns local aviation brands “SilkAir” and “Scoot”. It

also owns a 20.0% stake in Virgin Australia Holdings Limited

and 49.0% of both TATA SIA Airlines Limited (operates the In-

dian domestic airline, Vistara) and NokScoot Airlines Co., Ltd

(Thailand-based low-cost carrier).

¡ SIA’s biggest shareholder is Temasek Holdings (Private) Limit-

ed, which controls around 56% of the company’s shares.

Credit HighlightsSIA’s revenue in 1HFY20 increased 5.3% YoY to S$8.3 billion. Per

SIA, revenue increased on the back of strong growth in passenger

flown revenue, partially offset by a reduction in cargo flown reve-

nue. Meanwhile, total expenditure climbed at a higher pace of 5.8%

YoY to S$7.9 billion, primarily due to an expansion in non-fuel ex-

penditures. Operating profit margin therefore fell to 5.0% (1HFY19:

5.4%).

SIA continued to rely heavily on its anchor brand, Singapore Air-

lines, in 1HFY20. The parent airline company’s operating profit rose

11.2% YoY to S$465m, while SilkAir and Scoot reported larger op-

erating losses of S$19m and S$77m respectively. SilkAir continued

to be adversely affected by the global grounding of the Boeing 737

MAX 8 aircrafts, despite achieving passenger flown revenue growth

of S$4m (+0.9% YoY). Meanwhile, Scoot’s operating performance

was dragged down by weaker revenue per available seat-kilometre

(-2.1% YoY) and higher unit costs due to lower utilisation.

Nonetheless, SIA’s reported net profit was higher at S$226m

(+5.2% YoY), boosted by a reduction in share of losses from asso-

ciated companies (mostly from Virgin Australia) and higher share

of profits from joint venture companies. In 1HFY20, SIA’s reported

EBIT over interest expense was 3.5x. The current level of interest

coverage is still healthy in our opinion, although substantially low-

er than 6.1x in 1HFY19 following the adoption of IFRS 16 Leases.

Net debt (including lease liabilities) over equity increased from

51.5% in 1QFY20 to 61.2% in 2QFY20, as SIA spent S$2.78 billion

in capital expenditure (“capex”). The group is in the midst of a pe-

riod of elevated capex, with 159 outstanding aircraft deliveries and

a total of S$5.7 billion capex spending projected for FY20 (FY21:

S$6.0 billion). As such, we expect its net gearing to climb further

in the near-to-medium term.

RecommendationSIA’s status as Singapore’s flag carrier and the controlling stake of

~56% held by Temasek suggest a good likelihood of parental sup-

port in times of need. The link to Temasek also benefits SIA by pro-

viding it easier access to capital markets. Within the SIASP curve,

we see value in the SIASP 3.145% 08Apr2021 Corp (SGD), SIASP

3.160% 25Oct2023 Corp (SGD), SIASP 3.750% 08Apr2024

Corp (SGD), and SIASP 3.035% 11Apr2025 Corp (SGD). They are

indicating at ask YTMs of 2.29%, 2.47%, 2.52%, and 2.68% re-

spectively, offering fair term premiums along the curve.

Singapore Airlines Limited


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SIASP 3.160% 25Oct2023 Corp (SGD)

Bond Information


Issuer Singapore Airlines Limited

Guarantor -


Next Call Date -



Coupon Type Fixed













2.518%

SIASP 3.145% 08Apr2021 Corp (SGD)

Bond Information



Guarantor -


Next Call Date -



Coupon Type Fixed













2.344%

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2.585%


Bond Information



Guarantor -


Next Call Date -



Coupon Type Fixed













2.701%

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Background¡ Singapore Post Limited (“SingPost”) is the city-state’s national

postal service provider with over 160 years of history.

¡ An established provider of postal and logistics services in Singa-

pore and around the world.

¡ Listed on the SGX with market capitalization of approximately

S$2.07 billion.

¡ Major shareholders include Singapore Telecommunications Lim-

ited (22.0%) and Alibaba Group Holding Limited (14.6%).

Credit HighlightsFollowing a failed attempt to sell its ailing US e-commerce

businesses, SingPost announced in September that the group’s

US subsidiaries, Jagged Peak and TradeGlobal, filed voluntary

petitions for relief under Chapter 11 of the US Bankruptcy Code. The

US subsidiaries intend to pursue asset sales under the Chapter 11

proceedings. SingPost had substantially written down the carrying

value of its US businesses after taking impairments of S$185.0m

in FY17 (ended 31 March) and S$98.7m in FY19. As such, we expect

limited financial impact from the event.

After exiting the US market, SingPost had deconsolidated the

US subsidiaries starting in the financial quarter ended 30 Sep

19. Revenue of continuing operations increased 1.0% YoY to

S$645.6m in the six months ended September (“1HFY20”),

supported by the 2.9% YoY growth in post and parcel revenue.

Higher cross-border e-commerce deliveries contributed to the

post and parcel segment’s growth, which was partially offset by a

2.4% YoY decline in revenue from the logistics division.

Overall profit on operating activities fell by 16.5% YoY to S$81.0m

in 1HFY20, dragged down by a 14.9% decline in the post and

parcel segment’s operating profit. The management attributed the

slowdown to an accelerated decline in domestic business letter

volumes and the partial cessation of advertising mail volumes.

Meanwhile, the group incurred higher costs for initiatives to

improve service quality standards, including the hiring of additional

postmen and enhancement of their remuneration.

Finance expenses including distribution of perpetual securities

remained low at S$13.8m in 1HFY20, although somewhat higher

than the S$11.3m recorded in previous year’s corresponding period,

after the adoption of new accounting rules for the treatment of

leases. SingPost remained in a net cash position of S$39.3m as

of end-September (31 Mar 19: S$101.3m). Counting the company’s

lease liabilities and S$350m of 4.25% perpetual securities as

borrowings, we find its adjusted net debt over equity still healthy

at around 31%. SingPost’s financial flexibility remained ample with

its comfortable liquidity position and secured borrowings totaling

just S$10.2m, while investment properties amounted to S$1 billion.

Starting from December, SingPost adjusted some of its existing

products and services, and introduced two new postal service

categories—Basic Package and Tracked Package. The company

also raised its international airmail rates after having absorbed the

yearly increase in payment made to foreign postal operators since

2014. The adjustments should improve SingPost’s profitability

by transferring higher international postal settlement rates to

consumers.

RecommendationThe SPOST 4.250% Perpetual Corp (SGD) is ranked senior

unsecured and has a first call date of 2 Mar 22. At their YTW of

2.82%, we think the SPOST 4.25% perpetual notes offer a good

return for their ‘BBB’ issue rating.

Singapore Post Limited

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Reset Date: 02 Mar 2022 and every 10 years thereafter Reset Rate: Prevailing SGD 10Y SOR plus Initial Spread (2.192%) + Step-Up Margin (1.500%)

Reference Rate

SPOST 4.250% Perpetual Corp (SGD)

Bond Information


Issuer Singapore Post Limited

Guarantor -







Bond Sub Sector Air Freight and Logistics


Bond Credit Rating (S&P/Fitch) BBB / N.R

Issuer Credit Rating (S&P/Fitch) BBB+ / N.R








2.894%

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Reset Date: 27 Sep 2021 and every 3 years thereafter Reset Rate: Prevailing SGD 3Y SOR + Initial Spread (3.790%)

SBREIT 6.000% Perpetual Corp (SGD)

Bond Information


Issuer Soilbuild Business Space REIT

Guarantor -













HIGH YIELD SEEKER

Reference Rate





5.538%

Soilbuild Business Space REIT

Background¡ Soilbuild Business Space REIT (“SB REIT”) is a real estate in-

vestment trust that invests in a portfolio of industrial properties

in Singapore and Australia. As at 11 Dec 19, it has a market capi-

talisation of S$656.0m.

¡ As at 30 Sep 19, SB REIT owns 13 properties with a total net let-

table area of 4.03m square feet and a portfolio value of S$1.26

billion.

¡ The trust is sponsored by Soilbuild Group Holdings Ltd, which

is in turn wholly owned by Mr Lim Chap Huat, the sponsor’s

co-founder. The sponsor, Mr Lim, and his family members con-

trolled 29.1% of SB REIT’s units as of 31 Dec 18.

Credit HighlightsAs at 30 Sep 19, SB REIT’s portfolio occupancy rate fell to 88.4%

(4Q18: 89.5%), slightly below the JTC industrial average of 89.3%.

The occupancy weakness mainly came from the trust’s Singapore

portfolio, which reported occupancy of 87.4%. Nonetheless, we

noted that SB REIT achieved positive rental reversion for lease

renewals in 9M19.

In the nine months ended September, gross rental income rose

14.2% YoY to S$66.2m, lifted by higher contribution from Solaris

and the Australia properties. Net property income correspondingly

rose 8.3% YoY to S$53.6m.

Although SB REIT’s Australia properties had helped to offset weak-

nesses at some of its Singapore properties, we remained aware

increasing competition in Singapore’s industrial space market and

the tenant default situation surrounding NK Ingredients may con-

tinue to weigh on the REIT’s performance. On the other hand, the

acquisition of 25 Grenfell Street in Australia (expected to complete

in 4Q19) should increase SB REIT’s resilience and portfolio diver-

sification.

SB REIT’s outstanding debt increased from S$465.1m to S$491.5m

in the nine months ended September, partly due to the drawdown

of loans for the payment of deposit for the acquisition of 25 Gren-

fell Street. Despite a heavier debt load, SB REIT reported an ag-

gregate leverage ratio of 36.5%, improved from 39.1% as at 4Q18.

We continue to like SB REIT’s low refinancing risk as there is no

debt maturity until 2021. SB REIT also had S$45m of undrawn

committed credit facilities, and unencumbered investment prop-

erties and a property held for sale totalling S$881m, which should

provide the REIT with sufficient financial flexibility to meet its fi-

nancial obligations and fund growth opportunities.

RecommendationThe SBREIT 6.000% Perpetual Corp (SGD) has a yield to worst of

5.42% (Z-spread: 390bps) at its indicative ask price of 100.60. The

perp is callable first on 27 Sep 21 and every six months thereafter

at par. If not called in September 2021, its coupon rate will reset to

the sum of the prevailing 3-year SGD swap offer rate and the initial

spread of 3.79%.

The SBREIT 6% perps had an issue size of S$65m, of which

S$30m and S$2m were subscribed by Mr Lim Chap Huat and Mr

Ho Toon Bah (non-executive director) respectively. Taking into

consideration the large insider holdings that should lower the

perp’s extension risk and SB REIT’s overall moderate credit profile,

we have an overweight rating on the SBREIT 6% perp.

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Reset Date: 16 Jun 2027 and every 10 years thereafter Reset Rate: Prevailing SGD 10Y SOR plus Initial Spread (1.715%) + Step Up margin (100bps)

Reference Rate

STHSP 3.950% Perpetual Corp (SGD)

Bond Information


Issuer StarHub Limited

Guarantor -







Bond Sub Sector Diversified Telecommunication

Services











3.816%

Background¡ StarHub Ltd is one of Singapore’s largest telecommunications

providers.

¡ As at 12 Mar 19, Singapore Technologies Telemedia Pte Ltd (a

wholly-owned subsidiary of Temasek Holdings) controls Star-

Hub via its 75% indirect stake in Asia Mobile Holdings Pte Ltd,

which in turn owns an approximate 56% stake in Starhub.

¡ Ensign InfoSecuity (Systems) Pte Ltd (“Ensign”), a subsidiary of

StarHub, is Southeast Asia’s largest cybersecurity provider.

Credit HighlightsStarHub’s revenue for the quarter ended September (“3Q19”)

came in at S$573m, almost unchanged from 3Q18. Within the

company’s various divisions, enterprise business sales increased

17% YoY to S$146m, primarily from growth in cyber security and

managed services. Revenue from its cybersecurity unit alone wit-

nessed a 135% YoY growth to S$39m. Overall net profit during the

quarter was S$57m, similar to the level a year ago.

Cash and bank balances held by the company totaled S$154m in

3Q19, down from S$249m in 3Q18. Nonetheless, the level of cash

still exceeded its current borrowings and lease liabilities of S$110m,

translating to a healthy liquidity profile for the telco operator.

Net cash from operating activities improved from S$152m in 3Q18

to S$155m in 3Q19. Free cash flow, on the other hand, soared 35%

YoY to S$107m due to meaningfully lower capital expenditures

(“capex”). As of 3Q19, StarHub’s total outstanding capex commit-

ments amounted to S$428m, which included outstanding commit-

ments of S$282 for 4G spectrum rights.

As of September 2019, total unsecured borrowings added to

S$1.03 billion, comprising of S$50m of short-term debt, S$520m

of medium term notes and S$458m of long-term bank loans. As a

result of a lower cash balance, StarHub’s net debt position climbed

to S$874m in 3Q19. When expressed as a percentage of trailing-12-

month (“TTM”) EBITDA, the company’s reported gearing ratio —

net debt over TTM EBITDA — increased to 1.48x in 3Q19 from 1.23x

a year ago. On the other hand, our measure of total debt (including

perpetual securities) over total assets registered a decline from

46% in 3Q18 to 44% in 3Q19.

The outlook for StarHub’s mobile business may be challenging due

to the competitive telecommunication industry, and the firm may

invest a considerable amount of cash in 5G infrastructure over the

next few years. We suspect StarHub may increase borrowings to

pay for its 5G bid, but we think there is limited downside as the

firm has relatively stable credit and liquidity profiles. We also view

the tie-up with a Temasek unit to set up Ensign as a credit-positive

development.

RecommendationStarHub has one perpetual bond outstanding — the STHSP 3.950%

Perpetual Corp (SGD). The perp has a subordinated ranking and

a first call date of 16 Jun 22. At its yield to worst of 3.71%, we

recommend investing in the perp as we think it represents a decent

return for a SGD telecommunication credit with a healthy liquidity

position.

StarHub Limited

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STDCTY 7.250% 30Nov2021 Corp (USD)

Bond Information


Issuer Studio City Co Limited

Guarantor Multiple Guarantors


Next Call Date 27-Dec-2019



Coupon Type Fixed


Bond Sub Sector Hotels Restaurants and Leisure


Bond Credit Rating (S&P/Fitch) BB- / N.R

Issuer Credit Rating (S&P/Fitch) BB- / N.R

Seniority Secured


HIGH YIELD SEEKER





3.247%


Studio City International Holdings Limited

Background¡ Studio City International Holdings Limited provides hotel ser-

vices. The company’s primary business pertains to the Studio

City resort, a world-class gaming, retail and entertainment re-

sort located in Cotai, Macau.

¡ Studio City was listed on the NYSE in October 2018. The compa-

ny is strongly supported by its single largest shareholder, Melco

Resorts & Entertainment Limited (“Melco”).

Credit HighlightsTotal operating revenues for 3Q19 were USD158.1m, up 9.9% YoY

from USD143.8m in 3Q18. The increase in total operating revenues

was mainly due to the increase in revenues from the provision

of gaming-related services. Operating revenues from gaming-re-

lated services expanded 17.8% YoY from USD82.0m in 3Q18 to

USD96.7m in 3Q19, despite the market-wide VIP weakness in Ma-

cau that adversely affected rolling chip volume.

The mass market table games segment delivered a better perfor-

mance with a 9.0% YoY growth in mass table drop, offsetting the

weakness in the rolling chip segment. As a result, Studio City’s re-

ported adjusted EBITDA increased 21% YoY to USD90.9m.

Studio City’s cash and bank balances totalled USD670.9m (2018:

USD377.4m) at the end of September, including USD49.8m of

restricted cash (2018: USD31.6m). The amount of liquidity was

sufficient to meet short-term maturities of USD349.6m (2018:

USD347.7m). Total debt was USD1.78 billion at the end of 3Q19

(2018: USD1.61 billion), which translated to a net debt-to-equity ra-

tio of 100% (2018: 112%) and a debt-to-annualized adjusted EBIT-

DA ratio of 4.9x (2018: 5.4x) in 3Q19.

Although Studio City’s operating performance and credit profile

had improved significantly, the company’s interest coverage ra-

tio—as measured by operating income over interest expenses—re-

mained relatively weak at 1.4x in 3Q19 (3Q18: 0.8x). Furthermore,

we think Studio City’s financial leverage is likely to increase moving

forward because of the phase two expansion project of its resort.

On the other hand, Studio City’s liquidity position improved sub-

stantially in 2019 as its cash ratio rose from 0.86x to 1.49x in the

nine months ended September. Over the same period, the compa-

ny’s current ratio increased from 1.05x to 1.66x.

RecommendationStudio City has continued to deliver growing earnings and cash flow

along with robust financial performance. Also, with the support of

Melco, the company is undertaking continuous asset enhancement

with a series of property upgrades, which should further improve

its market position. Given the abovementioned factors, we hold a

positive credit outlook on Studio City.

The STDCTY 7.250% 30Nov2021 Corp (USD) is offering a yield

to maturity of 5.99%. Although Studio City may redeem the notes

at 101.813 prior to 30 Nov 20, we think the likelihood of a call event

is low, taking into consideration the bond redemption price and our

estimated financing cost of the company. Balancing Studio City’s

improved business operations and healthy earnings expectation

against its high leverage and revenue concentration, we think the

notes provide a decent return relative to their ‘BB-’ credit rating

by S&P.

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Reset Date: 21 March 2022 and every 5 years thereafter Reset Rate: USD 5Y SWAP + Initial Spread (4.647%) + Step Up Margin (2%)

TRAFIG 6.875% Perpetual Corp (USD)

Bond Information


Issuer Trafigura Group Private Limited

Guarantor -







Bond Sub Sector Metals and Mining






HIGH YIELD SEEKER

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8.817%

Trafigura Group Private Limited

Background¡ Trafigura is a global commodities trader, with an industry-lead-

ing position in oil and metals trading.

¡ In FY2018, Trafigura traded an average of 5.8 million barrels per

day of oil and petroleum products, making it one of the world’s

largest oil traders.

¡ The company is exclusively owned by its management and ac-

tive employees.

Credit HighlightsEven though Trafigura’s top-line revenue was almost unchanged

for 1H2019 (the 6 month period ended 31 Mar 2019) , earnings be-

fore interest, taxes, depreciation, and amortization climbed close

to a record high of USD 1.1 billion (1HFY18: USD 658m), while earn-

ings before interest and taxes (‘EBIT’) surged 55.4% to reach USD

893.7m (1HFY18: USD 575.2m).

The sharp increase in profits was largely due to a stellar perfor-

mance by the group’s oil trading division, which saw significantly

improved margins. Gross profit in oil and petroleum products more

than tripled to USD 1.04 billion, and the company reported signif-

icantly improved performance at its crude oil, gasoline, LNG, and

wet freight divisions.

For the six months ended March 2019, the EBIT-to-net financing

costs ratio improved to 2.8x from 2.4x reported in the comparable

period in 2018. The improvement in interest coverage was primar-

ily due to the earnings component, not the financing component.

Gearing – defined as the sum of short term debt, long term debt

and finance leases – was 58.3% of total assets as of 31 Mar 19,

down 1.5 percentage points compared to the level reported as of

30 Sep 18. Taking the group’s substantial operating leases and per-

petual securities into account, group gearing was 72.3%. These

ratios might appear high, however it is important to note that Tra-

figura held total credit lines of USD 59 billion from a record total of

some 135 banks, constituting a significant buffer of unused credit

to meet its ongoing debt obligations.

Trafigura has had little difficulty in the area of refinancing thus

far. In fact, financing costs have declined for the group, possibly

reflecting increased market confidence in Trafigura. In March 2019,

Trafigura refinanced a 365-day European revolving credit facility

worth USD 2.05 billion, which saw the participation of a larger and

more diverse syndicated lending group.

RecommendationTrafigura’s TRAFIG 6.875% Perpetual Corp (USD) bond issue has

a first call date in March 2022 (more accurately, the security is

first callable within the 90 days ending 21 Mar 22) and carries a

yield to call (“YTC”) of 10.1% (the yield to worst is 8.77%). The

attractive yield in excess of 10% reflects Trafigura’s higher gearing

relative to its peers.

Even though Trafigura has an outstanding fixed term note — the

TRAFIG 5.250% 19Mar2023 Corp (USD) — we underline our

preference for the company’s perpetual security as it carries a

significant yield premium of some 450 bps (based on YTC) over the

fixed-term bond. This is much higher than the typical subordinated

spread we observe in the market, even for speculative-grade

credits, which leads us to believe that the perpetual security would

be a better choice for investors.

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UBER 8.000% 01Nov2026 Corp (USD)

Bond Information


Issuer Uber Technologies Inc






Coupon Type Fixed


Bond Sub Sector Road and Rail


Bond Credit Rating (S&P/Fitch) CCC+ / N.R

Issuer Credit Rating (S&P/Fitch) B- / N.R



HIGH YIELD SEEKER





7.352%

Uber Technologies Inc.

Background¡ Arguably the most dominant player in the ride-hailing sector,

Uber Technologies Inc. (“Uber”) provides a mobile app that al-

lows users to order taxis, private hire cars and food delivery on

demand.

¡ Approximately three quarters of its revenue comes from ride

hailing with the remainder derived from Uber Eats – its food de-

livery service.

¡ Even though Uber is not present in South East Asia, it owns a

23.2% stake in Singapore based Grab.

¡ Uber is rated B2 and B- by Moody’s and S&P respectively. It has

a market capitalization of USD 48.9 billion.

Credit HighlightsUber is a company that is on the path to profitability but has yet to

achieve it. Uber saw its operating loss narrow from USD 5.5 billion

in the second quarter of 2019 to USD 1.1 billion in the third quarter

ended September 2019. A large part of the mind-boggling USD 5.5

billion loss which the company had recorded in the second quarter

was in large part due to stock option related expenses which is

unlikely to be of a similar magnitude going forward. For the most

recent quarter ended September 2019, the company only reported

USD 401m in stock based compensation expenses. In contrast, the

company reported stock based compensation expenses in excess

of USD 3 billion in the preceding quarter.

Revenue continues to grow at a rapid clip. For the third quarter of

2019, gross bookings grew 29% YoY to reach USD 16.5 billion. On

a constant currency basis, gross bookings increased by 32% YoY.

The company’s fastest growing division is its Uber Eats division.

Adjusted net revenue for Uber Eats grew 109% YoY to USD 392m,

for the third quarter of 2019. Uber currently derives approximately

17% of its revenue from Uber Eats.

Uber’s revenue pie is geographically diversified. Of the USD 3.8 bil-

lion in revenue recorded in the third quarter, USD 2.4 billion came

from North America, while USD 527m and USD 534m came from

the Latin America and Europe, Middle East and Africa (EMEA) re-

gions, respectively.

As of September 2019, the company had USD 12.7 billion in unre-

stricted cash and cash equivalents, up USD 900m largely due to

the issuance of USD 1.2 billion worth of senior unsecured notes.

The cash reserves compare favorably with the company’s total lia-

bilities of USD 16.2 billion, and demonstrates the inherently liquid

nature of Uber’s balance sheet.

RecommendationUber might have been the subject of much controversy and

negative headlines over the years, not least due to its association

with its flamboyant co-founder Travis Kalanick. However, the

numbers tell us that the company’s fundamentals are strong and

its business is growing at a decent clip.

For bond investors, we recommend the UBER 8.000% 01Nov2026

Corp (USD). The bond currently carries a yield to maturity of

7.46% and matures in 6.9 years.

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Background¡ One of the two Globally Systematically Important Banks in

Switzerland.

¡ Product of the 1997 merger of Swiss Banking Corporation and

Union Bank of Switzerland.

¡ Market capitalisation of CHF 44 billion.

¡ Primary driver of earnings is the Global Wealth Management

division.

Credit HighlightsAmidst a challenging operating environment, UBS saw its operat-

ing income slip 4.58% YoY to USD 7.09 billion for the third quar-

ter ended September 2019 (3Q18: USD 7.43 billion). Group profit

before tax declined 21% YoY to USD 1.35 billion (3Q18: USD 1.70

billion).

In the cost domain, the Swiss banking behemoth reported a cost to

income ratio of 80.6%, up from 76.5% reported in the preceding

quarter ended June 2019.

Capitalization and solvency wise, UBS disclosed a Common Equity

Tier 1 (CET1) of 13.1%, down slightly from the previous quarter when

the bank reported a CET1 ratio of 13.3%.

Global Wealth Management, the mainstay of the UBS Group, con-

tinues to thrive despite dampened economic sentiment. The divi-

sion attracted USD 16 billion in net new money, representing annu-

alized growth of some 2.6%. Transaction-based income grew 14%

YoY. The Global Wealth management is of outsized importance in

the context of UBS, given that this division accounts for over half

of the bank’s total revenue.

UBS is also active in the traditional Personal and Corporate Bank-

ing segment, whose activities are primarily confined to UBS’s

domestic market in Switzerland. For the third quarter ended Sep-

tember 2019, the division posted a profit before tax of USD 360m,

declining 10% YoY (3Q18: USD 399 billion). The division’s cost to

income ratio held steady at 59%.

For bond investors, one of UBS’ key strengths is its excellent sol-

vency profile and above average capitalization ratios. With a CET1

ratio of 13.1%, UBS surpasses its closest ranked Swiss peer Credit

Suisse, who reported a CET1 ratio of just 12.4%. Within continental

Europe, Societe Generale had a CET1 ratio of 12.5%, while Unicred-

it reported a ratio of 12.6%.

RecommendationFew banks in Switzerland, or the world for that matter, have quite

the cachet of UBS. With an excellent credit profile, an impeccable

reputation in the marketplace and a renowned wealth management

franchise existing within a diversified global business, UBS is a

company which offers much to clients and investors alike.

In the context of bond investing, we particularly like the UBS

5.875% Perpetual Corp (SGD). With a first call date in November

2023 and carrying a yield to next call of 4.53%, which is attractive

given the excellent credit metrics of the issuer. Another option to

consider is the UBS 4.850% Perpetual CORP (SGD) issue, which

is first callable in September 2024 and bears a yield to next call

of 4.69%.

Other bonds that might be of interest include the UBS 6.875%

Perpetual CORP (USD), UBS 4.125% 24SEP2025 CORP (USD)

and UBS 4.253% 23Mar2028 Corp (USD) issues.

UBS AG

UBS 4.253% 23Mar2028 Corp (USD)

Bond Information


Issuer UBS Group AG

Guarantor -





Coupon Type Fixed




Bond Credit Rating (S&P/Fitch) A- / A+

Issuer Credit Rating (S&P/Fitch) A- / A+








2.778%


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UBS 4.850% Perpetual Corp (SGD)

Bond Information


Issuer UBS Group AG

Guarantor -









Bond Credit Rating (S&P/Fitch) N.R / BBB-









4.702%

Reset Date: 28 Nov 2023 and every 5 years thereafterReset Rate: Prevailing SGD 5Y SOR + Initial Spread (3.605%)

Reference Rate

UBS 5.875% Perpetual Corp (SGD)

Bond Information


Issuer UBS Group AG

Guarantor -









Bond Credit Rating (S&P/Fitch) N.R / BBB-









4.556%


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UBS 6.875% Perpetual Corp (USD)

Bond Information


Issuer UBS Group AG

Guarantor -




Coupon Frequency Annually





Bond Credit Rating (S&P/Fitch) BB / BBB-








3.434%

HIGH YIELD SEEKER

UBS 4.125% 24Sep2025 Corp (USD)

Bond Information


Issuer UBS Group AG

Guarantor -


Next Call Date -



Coupon Type Fixed




Bond Credit Rating (S&P/Fitch) A- / A+









2.515%

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UEMSP 3.680% 01Jun2021 Corp (SGD)

Bond Information


Issuer United Engineers Limited

Guarantor -


Next Call Date -



Coupon Type Fixed


Bond Sub Sector Construction and Engineering











3.931%

Background¡ Founded in 1912, United Engineers Limited (“United Engineers”)

is one of Singapore’s oldest home-grown companies. Over the

years, United Engineers has evolved from an engineering and

construction firm to become a dynamic corporation with busi-

nesses spanning across property rental and hospitality, proper-

ty development, engineering and distribution, and manufactur-

ing.

¡ After selling in 2016 its 42.2% stake in Multi-Fineline Electro-

nix, a manufacturer of flexible printed circuits and component

assemblies, United Engineers’s non-property businesses have

diminished in terms of revenue and profit contributions.

¡ In 2019, Chinese real estate player Yanlord Land Group Limited

(“Yanlord Land Group”) announced a takeover offer for all the

ordinary shares of United Engineers, offering to acquire the lat-

ter at an initial bid of S$2.60 per share.

¡ United Engineers currently carries a market capitalization of

S$1.7 billion

Credit HighlightsUnited Engineers saw its revenue increase 38% YoY to S$112.4m

for the third quarter ended September, due to greater revenue

contributions from property development, property rental and

hospitality activities. The increase was partially offset from lower

contributions from the firm’s manufacturing and engineering

arms. Operating profit before revaluation of investment properties

almost tripled to S$24.4m (3Q18: S$8.67m).

United Engineers is conservatively geared with a gearing ratio of

just 27.7% as of end September 2019, down from 30.0% in end

December 2018. Gearing is defined as debt over total assets.

That said, United Engineers is not a cash rich company. As of 30

September 2019, it had S$253.7m in cash and cash equivalents,

versus around S$1.0 billion in borrowings. One key advantage

that the firm possesses though, is the abundance of development

properties held for sale (a current asset). As of September 2019,

United Engineers had S$986.6m in properties held for sale. With

these assets taken into account, United Engineers had a current

ratio of 4.55x.

In October 2019, Yanlord Land Group — through its subsidiary

Yanlord Investment (Singapore) — announced an offer to acquire

shares in United Engineers for S$2.60 apiece. In 2017, a consortium

comprising Yanlord Land, Perennial Real Estate and Heng Yue

Holdings had launched a similar takeover bid, offering to acquire

shares in United Engineers for the same price.

Since the October offer, Yanlord Land Group has brought its stake

in United Engineers over the 50% threshold, an event which

caused its offer to turn unconditional. We also understand that

Yanlord Land Group has raised its offer price to S$2.70 per share.

In addition, Yanlord Land Group has announced a mandatory

unconditional cash offer for WBL at S$2.5947 per share, pursuant

to a ruling by the Securities Industry Council of Singapore. United

Engineers owns a 69.14% stake in WBL, a property development

and engineering firm which was delisted from the Singapore

Exchange in 2014.

RecommendationWe recommend United Engineer’s UEMSP 3.680% 01Jun2021

Corp (SGD), which carries a yield to maturity of 3.29%. With the

inevitable acquisition by Yanlord Land Group, a firm with a market

capitalization of S$2.3 billion, United Engineers should benefit

from being part of a larger and more established group.

United Engineers Limited

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WINGTA 4.700% 28Feb2024 Corp (SGD)

Bond Information


Issuer Wing Tai Holdings Limited

Guarantor -


Next Call Date -



Coupon Type Fixed



and Development











3.111%

Background¡ Wing Tai Holdings Limited (“Wing Tai”) is a leading property

developer and lifestyle company listed on the SGX Mainboard

since 1989, with a market capitalisation of S$1.49 billion on 11

Dec 19.

¡ The group is led by Mr Cheng Wai Keung, who sits on the board

as chairman and managing director. The founding Cheng family

controls around 51% of the group’s shares (excluding treasury

shares).

¡ Wing Tai operates mainly in property development and retail

operations across Asian markets including Singapore, Malaysia,

Australia and China.

¡ As at 30 Jun 19, Wing Tai’s retail footprint extends to over 243

stores with 17 brands in Singapore and 14 brands in Malaysia.

Credit HighlightsIn the first financial quarter ended September (“1QFY20”), Wing

Tai’s revenue was largely stable at S$79m (+2% YoY). Meanwhile,

cost of sales plunged 20% YoY to S$37m. Together with lower

rental costs for retail stores in Singapore, the group managed to

grow its net profit from S$2.3m in 1QFY19 to S$6.8m in 1QFY20.

Wing Tai’s cash position fell to S$212m as at 1QFY20, which was

substantially lower from S$856m in September last year. The

group, however, maintained a comfortable liquidity profile as it had

no debt due within the 12-month period from 1QFY20. Current as-

sets of S$1.4 billion, including development properties of approxi-

mately S$1.1 billion, significantly exceeded the group’s current lia-

bilities of S$124m.

Net cash generated from operating activities remained positive,

although it decreased modestly from S$72m in 1QFY19 to S$53m

in 1QFY20. Meanwhile, net cash from investing activities declined

from positive S$16m in 1QFY19 to an outflow of S$46m due to the

group’s acquisition of a data centre in Australia.

In addition to its strong liquidity position, Wing Tai also carried a

low debt-to-total assets ratio. Pursuant to its 1QFY20 filing, Wing

Tai recorded S$628m of long-term borrowings and S$300m of per-

petual securities. The level of financial obligations nearly matched

aggregate debt of a year ago, when the developer held S$781m of

long-term debt and S$150m of perpetual securities on its balance

sheet. Including perpetual capital securities, the company’s debt

over assets remained at 21% in both 1QFY20 and 1QFY19.

RecommendationAmong Wing Tai’s straight bonds, we recommend investing in the

WINGTA 4.000% 07Oct2021 Corp (SGD) and WINGTA 4.500%

26Sep2022 Corp (SGD) with their YTMs of 2.59% and 2.77%

respectively. Investors who are interested in a longer-dated

exposure may consider the WINGTA 4.250% 15Mar2023 Corp

(SGD) and WINGTA 4.700% 28Feb2024 Corp (SGD), which are

yielding 2.87% and 3.03% respectively.

We also like Wing Tai’s perpetual bonds, the WINGTA 4.080%

Perpetual Corp (SGD) and WINGTA 4.480% Perpetual Corp

(SGD), which have indicative ask YTWs of 4.00% and 4.19%

respectively. Both perps are ranked pari passu with the senior

unsecured bonds. The WINGTA 4.08% perp and WINGTA 4.48%

perp are first callable in June 2022 and May 2024 respectively,

which are also the first reset dates. With reference to the WINGTA

4.08% perp, we note that a coupon step-up margin of 100bps will

kick in only five years after the first call date.

Wing Tai Holdings Limited


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WINGTA 4.500% 26Sep2022 Corp (SGD)

Bond Information



Guarantor -


Next Call Date -



Coupon Type Fixed



and Development











2.892%

WINGTA 4.000% 07Oct2021 Corp (SGD)

Bond Information



Guarantor -


Next Call Date -



Coupon Type Fixed



and Development











2.753%

WINGTA 4.250% 15Mar2023 Corp (SGD)

Bond Information



Guarantor -


Next Call Date -



Coupon Type Fixed



and Development











2.953%

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WINGTA 4.480% Perpetual Corp (SGD)

Bond Information



Guarantor -








and Development






HIGH YIELD SEEKER





4.198%

Reset Date: 28 Jun 2022 and every 5 years thereafterReset Rate: Prevailing SGD 5Y SOR + Initial Spread (2.370%) + Change of Control Margin (if applicable) + Step-Up Margin (100bps on 28 Jun 2027)

Reference Rate


Bond Information



Guarantor -








and Development






HIGH YIELD SEEKER

ASK YIELD TO WORST


4.242%

Reset Date: 28 Jun 2022 and every 5 years thereafterReset Rate: Prevailing SGD 5Y SOR + Initial Spread (2.370%) + Change of Control Margin (if applicable) + Step-Up Margin (100bps on 28 Jun 2027)

Reference Rate


Bond Information


Guarantor -








and Development






HIGH YIELD SEEKER

ICNDIINDICAATIVE ATIVE ASK PSK PRICE RICE

999..471INDICINDICATIVE BID PRICEATIVE BID PRICE

99.3.301ASK YIELD TO WORST


4.004%

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WINGTA 4.250% 29Nov2022 Corp (SGD)

Bond Information


Issuer Wing Tai Properties Finance Limited

Guarantor Wing Tai Properties Limited


Next Call Date -



Coupon Type Fixed



and Development










3.258%


Background¡ Wing Tai Properties Limited (“WTP”) is an investment holding

company listed on the HKEX. Its subsidiaries are principally in-

volved in the areas of property development, investment, and

management; as well as hospitality investments and manage-

ment.

¡ WTP is an associated company of Wing Tai Holdings, which held

a 34% interest in the company as of June 2019. Sun Hung Kai

Properties Limited also held an approximate 14% stake in the

firm.

¡ In accordance with its 1H19 report, WTP recorded a total asset

value of HKD36 billion and book equity value of HKD29 billion.

Credit HighlightsIn the six months ended June 2019, WTP generated HKD424m and

HKD285m of revenue and profit before tax (“PBT”) respectively,

which translated to an impressive PBT margin of 67.3%. Gross

profit margin remained at a very healthy level of 80.5%, up from

78.8% in 1H18. We think these high margins were a result of the

expensive rental market in Hong Kong, which largely benefitted

property owners. However, management expected for the Hong

Kong property market to become more challenging in the near

term, in view of the ongoing political and societal upheaval in Hong

Kong and US-China trade tensions.

Despite the recent social turmoil in Hong Kong, WTP’s hospitality

business achieved a respectable performance in 1H19. Revenue

from the hospitality investment and management segment rose

slightly to HKD71m in 1H19 from HKD68m a year ago. Excluding fair

value changes in investment properties and financial instruments,

the segment swung to an operating profit of HKD19m (1H18: loss

from operations of HKD10m).

WTP has a high interest coverage ratio. We estimated that the

company’s EBITDA was 5.1 times its interest expense (including

distributions paid on perpetual capital securities). This is a healthy

level in our opinion despite the drop from 6.7x in 1H18.

Similarly, WTP’s adjusted net debt over equity (treating perps as

borrowings) remained healthy at 14.5%. Even if we conservatively

included the whole of HKD8.1 billion of contingent liabilities

(guarantees granted on bank loans of joint ventures), we estimated

that the company’s adjusted net gearing would increase to 53%,

which was still a manageable level.

RecommendationIn view of WTP’s decent credit profile backed by a low refinancing

risk and strong asset base, we remain confident of the company’s

debt-servicing capability. The WINGTA 4.250% 29Nov2022

Corp (SGD) carried an ask YTM of 3.08% on 11 Dec 19. The note

looked comparatively more attractive to Wing Tai Holdings’ 4.5%

notes due September 2022, which had an ask YTM of 2.77%.

We think the yield spread between the two bonds offers a good

compensation for a two-month maturity difference in favour of the

WINGTA 4.25% ‘22s.

The WINGTA 4.25% ‘22s also arguably offer better value against

Wheelock & Co Ltd’s SGD 4.5% notes due 2021 (YTM: 2.38%).

In our opinion, the yield pickup from the WINGTA 4.25% ‘22s

compensates well for their 1-year longer maturity and WTP’s

smaller operating scale.

Wing Tai Properties Limited

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