Sunday, 18 October 2015

Perennial Real Estate Holdings Limited - 4.65% 3 years



Perennial Real Estate Holdings Limited ("PREH" or "Issuer") is offering up to S$150m of 3-year bonds with an interest rate of 4.65%. The OIS and product highlight sheet can be found here. You should read at least the product highlight sheet ("PHS").

The key terms are as follows:

Amount:  Up to S$150m

Interest rate: 4.65% fixed

Interest Payment date:  Twice a year on 23 April and 23 October

Maturity date:  23 October 2018

Manager:  DBS Bank

Ratings:  Not rated

CPF application: Not allowed

SRS application: Not allowed for initial application but may purchase post listing

Minimum application: S$2,000 for public tranche and $100,000 for placement tranche.

Timeline of Key Events


Background Information on the issuer

I will not repeat what you can find in the PHS or OIS. In a nutshell, PREH is a property developer and investor with mature and developing properties in Singapore and mainly China. It has a "blue chip" name of local tycoons supporting PREH, such as founders of Wilmar and OSIM.

Nature of bonds - what exactly are you looking for?

When we invest in bonds, we are trying to solve for the answers to the following questions:
  1. Do I like the coupon rate?
  2. Can i afford to hold the bond till maturity?
  3. Can the Company pay me the regular interest coupon twice each year?
  4. Can the Company pay me back my principal at maturity?
If all your answers to the above questions are "yes", then the bond is suitable for you.

How is PREH expected to be performing over the next few years?


PREH is expected to do well for the next 3 years, experiencing high growth every year. CIMB has a Add rating to PREH. The research reports are attached here and here.


You can see above that while equity investors is expected have a nice share price upside but their expected dividend yield is less than 1%! 

Debt level

The Company is highly geared. I am not going to pretend that it is not. Having said that, i believe the current debt is manageable. You can see from the long term solvency ratios below that the Company is very highly geared.


Mr IPO's views

I am currently trying to construct a bond portfolio to generate passive income. I will share that in my SRS blog shortly

What i like about PREH bonds is as follows:
  • Strong management with good track record
  • PREH is forecasted to do well for the next 3 years (see research report)
  • Assets with SGD inflow will help hedge the bonds naturally. RMB is also expected to be stable against the SGD
  • 3 years fixed rate of 4.65% sounds about right. I can redeploy the cash after maturity if interest rate goes up by then
My key concerns will be the over-geared balance sheet but i am optimistic that 50% LTV is adequate to protect my unsecured bonds.

If you don't have the holding power, then this bond is not for you. 

Happy Bonding. Mr. IPO is vested through the placement tranche.


12 comments:

Anonymous said...

Hi Mr Singapore IPO,
Many thanks for the info and will apply for a small position, l like the yield and short 3 years holding period.

Anonymous said...

Thank for analysis. I ballot some in public.

Mr. IPO said...

You are most welcome! Good luck.

Anonymous said...

Balloting results out ?

James said...

Any idea if it's possible to leverage to buy $100k of bonds via placement tranche?

Mr. IPO said...

Usually private banks won't lend you against unrated bonds.

Anonymous said...

Hi Mr. IPO,
Do people practice buying and selling bonds in SGX equity market just like any equity?

Is there any difference between obtaining the bonds through offering and buying the bonds directly from SGX mainboard?

Thanks

Mr. IPO said...

No difference if you can acquire at same or lower price in open market. The retail bond market is still developing.

blazingruby60 said...

Hello Mr Ipo
I would like your opinion on Oxley Holdings Bond 4 yr at 5 pct. What is your take on this bond.
thanks

Anonymous said...

Hi IPO,
Jumbo IPO has arrived finally and thanks to the management that retail investors can participate.
But their debt looks high to me, shall I go to the ATM? :-)

Anonymous said...

Hi Mr IPO,
Perennial 4.65% bond is trading at SGX.Thought of buying,But I don't know whether I'll be able to receive the
first 4.65% payout.Thanks.
Anonymous.

Mr. IPO said...

Why don't know whether will receive? Not sure where the question is driving at. Pls elaborate.

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