Corporates rush to lock in low rates

Corporates rush to lock in low rates

THE plunge in local interest rates to a five-month low has led to a rush of companies selling debt, including the year's first retail bond offering.

Currency players say that home buyers might want to emulate these companies and lock in borrowing costs for the next 2-3 years as the fall in interest rates, which is due to the sharp decline of the US dollar since peaking this year in January, could be temporary.

"It is likely that both home buyers and issuers might take advantage of the latest pullback, to lock in the lower borrowing costs for the next two-three year horizon," said Tan Teck Leng, Asian FX strategist, UBS Wealth Management.

For the year till March 21, there were 32 deals on the Singapore dollar bond market that raised S$4.8 billion in total, up 17 per cent from the same period last year where S$4.1 billion was raised in 36 deals.

The three-month swap offer rate, which is used to price commercial loans, fell to 1.04 per cent on March 21, a level last seen in October. The plunge in the SOR has been dramatic, considering that the 52-week high was hit less than three months ago; it was 1.76 per cent on Jan 13.

The three-month Sibor or Singapore interbank offered rate, which is used to price home loans, has fallen just a bit. It stood at 1.23 per cent on Tuesday, down from the year-high of 1.25 per cent on Jan 19.

Local interest rate declines have followed the rallying Singapore dollar, in line with the rise of other Asian currencies as they reacted to central banks' growth stimulation policies.

"The snapback in risk appetite," said Selena Ling, OCBC Bank economist, "has been breathtaking, as reflected in both Asian FX and interest rates action post-FOMC/ECB/BOJ."

FOMC is the US Federal Open Market Committee, ECB is the European Central Bank and BOJ is the Bank of Japan.

The Singdollar stood at 1.36 to the greenback, the highest it has been since last March. The low was 1.44 on Jan 15.

While borrowers and bankers who handle the deals are pretty happy, some say that the situation of the weaker US dollar cannot last.

Mr Tan said that over a 6-12 month horizon, UBS expects a broader recovery in the US dollar, helping the currency to regain the 1.44-1.45 levels seen in January. "

The key to this view would be the Fed resuming its rate hike cycle in September. Once the Fed turns hawkish in the months ahead of the actual rate hike, we expect markets to build up the net-long USD positioning, and underpin a broader USD rebound."

Clifford Lee, DBS Bank head of fixed income, said that the market was not expecting US interest rates to spike up. He said that the biggest signal on rates not shooting up is from the US Fed which last week toned down hike expectations. "Concerns of rate rise is more muted compared to last year."

Ms Ling said that OCBC saw a Fed rate hike as early as June.

Still, for the moment, it's strike while the iron is hot and companies that need funding are doing just that.

"The corporate bond issuance has been very opportunistic," said Ms Ling.

The year's first retail bond offering also came on Tuesday. Aspial Corp is making its second foray into retail bonds by selling up to S$75 million four-year 5.3 per cent bonds.

The bonds, issued by wholly owned Aspial Treasury, comprise an offer of up to S$50 million to the public via ATM applications and up to S$25 million to institutional and other investors.

There were four retail bonds offered last year - from Oxley Holdings, Perennial Real Estate, Aspial Corporation and Frasers Centrepoint. All were oversubscribed and upsized.

DBS's Mr Lee said: "Offering of bonds to retail is no stranger than equity offerings . . . I expect more issuers to test the (retail) appetite."

"Everybody is looking for the bull stock market" while "bonds are a defensive instrument", he said.

DBS has been a big gainer in the bond market rankings, with 50 per cent market share, up from 29 per cent last year. Year to date, DBS has handled 17 corporate bond deals, helping to raise S$3.7 billion. In the same period in 2015, it did 13 deals, raising S$2.5 billion.

This article was first published on March 23, 2016.
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