Companies seize chance to secure cheaper funds

Companies seize chance to secure cheaper funds

NO ONE likes to pay a higher interest rate on borrowed money than is necessary, and big companies that raise funds by selling bonds are no exception.

For several financially powerful companies, recent bond market turmoil has meant a golden opportunity to buy back debt at an attractive price using money raised earlier at a cheaper rate.

At the same time, these companies have been able to give investors left jittery at volatile bond prices a big shot of confidence.

Companies sell bonds to investors to raise funds and pay them a regular fixed dividend or "coupon" rate. The bonds are listed on the Singapore Exchange.

In the past fortnight, OCBC Bank and CapitaLand have led the way by offering to buy up almost $1.8 billion worth of debt which they had issued to bolster their balance sheets during the global financial crisis five years ago.

Essentially, they have redeemed existing bonds with funds raised earlier at a lower cost. This has spurred hopes that other similarly well-capitalised companies will follow in their footsteps.

Mr Clifford Lee, head of fixed income at DBS, said: "This is a good time for companies with strong credit to buy back their debt. The bond market is choppy because of interest rate volatility. Companies are fundamentally sound."

It is a big contrast from the dark days of the 1998 Asian financial crisis when companies tried hard to hoard every drop of liquidity as investors stampeded for the exit given the big number of corporate bankruptcies, he said.

These big buy-backs, which come with sweeteners, give jittery bond-holders some confidence, which feeds through to steady the nerve of stock investors.

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