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Temasek offers its first retail bonds, five-year notes come with interest rate of 2.7 per cent

SINGAPORE — For the first time, retail investors in Singapore will be able to apply for Temasek-issued bonds from Wednesday (Oct 17), with analysts expecting them to be snapped up.

SINGAPORE — For the first time, retail investors in Singapore will be able to apply for Temasek-issued bonds from Wednesday (Oct 17), with analysts expecting them to be snapped up.

The five-year bonds have a fixed interest rate of 2.7 per cent, the state investment firm said in a filing to the Singapore Exchange on Tuesday.

Analysts expect strong demand for the bonds due to its AAA-rating, its higher yield compared with other government-backed bonds, as well as the current climate where investors are moving to lower-risk assets due to turbulence in financial markets.

Temasek is issuing a public offer of up to S$200 million of the T2023-S$ Temasek Bond, and another placement of S$200 million of bonds for institutional investors.

Fixed income and bond analyst Ang Chung Yuh from iFast Financial said that more than S$1.6 billion worth of orders were placed by institutional investors at 3.30pm on Tuesday, meaning the institutional placement was over-subscribed by eight times.

Mr Ang expects to see a “very strong” demand when the offer opens to the public, noting that its fixed interest rate of 2.7 per cent offers a good return compared to other bonds issued by government agencies.

For example, the five-year bonds issued by the Housing & Development Board (HDB) in March this year have a 2.3 per cent rate.

Financial Alliance’s wealth advisory director Dhananjaya Reddy Eswaravaka cited another example, that the five-year yield for the Singapore Savings Bond is less than 2.5 per cent.

The interest rate at the five-year mark for the latest Singapore Savings Bond is 2.54 per cent and its average annualised return at the end of the fifth year is 2.22 per cent.

Mr M Salim, chief executive officer of financial advisory firm Avallis Financial, said that a return of 2.7 per cent for Temasek’s bonds is “fair” and retail investors “cannot get anything more competitive” for a short-term bond that has a AAA-rating.

Analysts noted that the public demand for Temasek’s bonds will be partly driven by the lack of options for retail investors in the bond market.

Mr Salim explained that most bonds are issued in tranches of S$100,000 or even S$200,000, and most retail investors do not have the capital to buy bonds at this size.

The T2023-S$ Temasek Bond, on the other hand, will be issued in denominations of S$1,000 for retail investors, with a minimum investment amount of S$1,000.

This is a “fairly good deal” for retail investors, said Mr Salim. 

Analysts also noted that investors are trying to “de-risk from equity” and are looking for “safe havens” due to turbulence in the financial markets caused by trade tensions and the hiking of interest rates by the United States Federal Reserve.

Mr Dhananjaya Reddy said Temasek’s offer of the bonds therefore comes at a “right time”.

Mr Ang said: “The demand for safer credit names that provide a decent return is very strong this year… People are tilting from more speculative bonds to safer bonds.”

Due in 2023, the Temasek bonds are offered under its subsidiary Temasek Financial’s S$5 billion Guaranteed Medium Term Note Programme, and is guaranteed by Temasek.

Retail investors interested in applying for the bonds can do so from 9am on Wednesday till noon on Oct 23, through their Central Depository accounts.

Central Provident Fund (CPF) members can use up to 35 per cent of their investible CPF savings to apply for the bonds on public offer.

If the bonds are over-subscribed, applications from retail investors will be balloted and allocated on Oct 24. Unsuccessful applications will be refunded.

The bonds' expected issue date is Oct 25.

Temasek said the capital raised from this bond issuance will be used to fund its “ordinary course of business”.

Opening up the offer to retail investors would help Temasek “broaden its stakeholder base and provide Singapore retail investors with the opportunity to participate in another retail product”, said its chief financial officer Leong Wai Leng.

“We issue Temasek bonds as public markers of our credit quality — this is very much part of our financial discipline as a long-term investor. They also increase our funding flexibility,” she added.

In June this year, another Temasek Holdings unit, The Azalea Group, issued its first private equity-backed bond for retail investors, where the retail tranche of Class A-1 bonds carries an annual interest rate of 4.35 per cent.

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