5-Year T2023-S$ Temasek Bond Buy! Buy! Buy!
This is the first time Temasek has offered a 5-year bond, T2023-S$, which will be listed on the SGX and made available to the public. The offer is up to S$400 million, with potential upsize to S$500 million if oversubscribe. The bond has an interest rate of 2.70% per annum payable semi-annually. Applications must be in multiples of S$1,000 with minimum of S$1,000.
For comparison, a 10-year Singapore Savings Bond has an average interest rate of 2.48%, and a 5-year Singapore Savings Bond is 2.22% for November 2018 issue. This makes the Temasek Bond much more attractive than the Singapore Savings Bond. The logical thinking will be to redeem all our Singapore Savings Bond and buy the Temasek Bond. But note that there is only S$400 million, or S$500 million if oversubscribe, for subscription which includes institutional placement, accredited investors and public. The public tranche is only up to S$200 million. It is expected that the bond will be heavily oversubscribed, so it is unlikely to get full or large allocation. My guess is that the allotment will be similar to Astrea IV private equity bonds issuance where everyone who subscribes will be getting at least $1000 to reach out to more investors but each with a smaller allocation. You probably will only be allocated a small portion of what you have subscribed for. So, there is no need to redeem all your Singapore Savings Bond and put them all into the Temasek Bond.
In terms of risk, the probability of Temasek defaulting on a S$400 million bond is extremely low for a company which has a portfolio value of S$308b. The statement "T2023-S$ Temasek Bond will be unconditionally and irrevocably guaranteed by Temasek" is as good as saying that the bond is backed by the Singapore Government, although technically Temasek is still a Private Limited company. As for the rising interest rate, a 5-year SGS Bond average yield for 2018 is currently around 2.33% which is lower than the Temasek Bond. It is hard to predict whether the interest rate will exceed the bond in a few years time. If it does, then probably there will be opportunity cost incurred for holding it for 5 years. As for liquidity, you can sell the bond on the exchange at the indicative bid price but there will not be any accrued interest given and commission cost will be incurred.
Without any doubt, I will be subscribing for portfolio diversification since I am already close to 60% in equities.
The following is the timetable for your reference.
Wednesday 17 October 2018
- Offer opens at 9:00am under the Public Offer
- Offer closes at 12 noon under the Public Offer
- Expected announcement on SGXNET of results of the Public Offer and the Placement
- Expected Issue Date
- Expected date and time of start of trading of the bonds on the Main Board of the SGX-ST
More details can be found on Temasek website.
Yes. For CPFIS, you will have to weight against paying your housing loan or topping up your SA. For me, using spare cash for purchase will be more attractive as compared to using CPFIS.
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