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Saturday, 20 October 2018

Temasek T2023 - S$ Bond

Temasek is issuing a 5 year S$ bond at a fixed interest rate of 2.7% p.a. S$200m is available for the public tranche and investors can start applying from S$1,000. The bonds pay interest twice a year and will mature in 2023. The offer will close on 23 Oct 2018 at 12pm. For more information, you can visit

Not sure why Temasek need to show the 4 big ethical groups (Chinese, Malay, India, Others) with "HDB" as backdrop in its offering circular given that it is not a political entity. This is probably to indicate that the retail bonds is for everyone in Singapore (especially those from heartlands?).... In any case, this is the first time the long "over-due" Temasek bonds is available to retail investors here. 

I applaud Temasek's efforts to do this for the retail investors, frankly they don't have to do this as it is much easier and faster just to have an institutional offering (if they really need cash, which they don't). In fact, even HDB is not issuing bonds to retail investors! My own view is that the government or MAS should encourage and make it easier for local T-related corporations to issue bonds to retail investors. 

I will not elaborate on who Temasek is and what they do as these information are easily available. In one short sentence - Temasek was formed by the government in 1974 to manage its investments and its portfolio value has grown significantly since inception to S$308b as of March 2018.

 Default Rates of Corporates

If you look at the table above, Temasek's bonds are rated AAA by both S&P and Moody's. This rating is better than many sovereign ratings! The risk of default, per the table above, is zero. Hence, investors who buy in this bond and basically sleep super soundly at night. 💤 (if insomnia is a problem)

If you are still not convinced about its credit worthiness, the key credit ratios looked pretty healthy from all angles.

Conclusion- they don't really need to issue the retail bonds. 

What type of investors would be suitable?

Given we have determined that default rate is nil, the AAA rated bond is suitable for retail investors with zero risk tolerance and is currently investing in government-linked securities or Singapore Savings Bonds.

Singapore Saving Bonds ("SSB")

The Oct 2018 SSB is paying an average of 2.22% if you hold it for 5 years. In this regard, the 2.7% offered by T2023 is slightly better. Hence if you are considering putting money into the SSB, you might want to try your luck at Temasek T2023 bond.

Investors with higher risk tolerance and is willing to accept a higher return for a lower rating should look at other options. If they are accredited investors, they should look at bonds issued by Temasek-linked companies such as Singapore Airlines or if they can't afford the $250,000 per pop, they can evaluate the Astrea IV Class A-1 bonds that has a face value interest rate of 4.25%. You can refer to the write up on Astrea IV here

For investors who die die must subscribe to T2023, what would be the other considerations?

What are the considerations for investors in T2023 Bonds?
  • You can use your CPF to apply for the bonds - Investors who have no use of the CPF money can use them to apply for the bonds from the CPF OA and "arbitrage" the difference. I will consider doing this since i have a lot of cash sitting inside the CPF Ordinary Account doing nothing anyway
  • You are unlikely to get full allocation - Similar to Astrea IV, you are unlikely to get full allocation as the issue will be over-subscribed. You should get something if you apply but you are unlikely to get full allotment. I would hazard a guess that if you apply for $5,000 or less, you may get what you asked for but anything in excess of $5,000 will likely be cut back
  • Post market liquidity will be marginal - If you have no use for the cash for 5 years, then this will not be a concern, However, if you think that you may need the cash a few years down the road, then you will need to be aware that liquidity may be low as most bond investors are "buy-and-hold" type of investors. The trading volume is likely to be low post issuance
  • A rising interest rate environment may result falling bond prices and US Fed is likely to increase rates in the coming months. Will that have a knock-on effect on interest rates here remained to be seen but the risk is there
Will Mr. IPO be subscribing and what is the chilli ratings?

The placement tranche was "hot" and oversubscribed. I will give it a 3 chillis for the risk-free status but 1 chilli for the 2.7% return as the return is too low for my risk profile

My cash can be put to better use but i may consider using CPF to apply since it is earning a better return than 2.5%

How to enhance my "return" if i intend to apply for the T-Bond?

My friends attended the public seminar on Friday and it was well attended. While there was no refreshment, the "door gift' was a $20 Suntec voucher. That alone is worth 74% of the bond interest of $27 if you intend to apply for $1,000 T-bond. 😂

I have already told you how to "enhance" your bond returns, so now it is polling time! You can poll here.


Pythia said...

I feel there are better SGD bonds to be found by looking at either REITs issuances or banks (local banks have issued some investment grade perpetuals that usually yield to call around 4.5%)

Anonymous said...

Lehman Brothers was AAA rated but still went burst. No nothing is absolute in life.
If one subscribe for $5K and assume full allocation you predicted (which I agree based on history),the coupon is only miserable $130 a year. Only enough for a small family dinner in a restaurant once a year. Is it worth while ?:)

Mr. IPO said...

Different risk profiles and bite sizes. If only more corporates issue retail type bonds

Mr. IPO said...

Hahaha yah, probably not worth the effort. 🤣

Mr. IPO said...

If Temasek collapse, then I think the rest of SG investments we have also kaput ...

Anonymous said...

I haven't apply for this bond becos I am still undecided.

I have 3 questions.

For this T2023 Bond, if a person is alloted $50,000 bonds and if for example, this bond falls to 80 cts within the next 1 to 4 years, but if the person holds his T2023 bond until end 2023, then is it Temasek will still pay him back the full principal amount $50,000 in end 2023?!

2)Every 6 months the interest payment is it directly deposited into our SGX-GIRO-linked bank account??

3)At the end of the 5 years in end 2023, if we still do not sell the bond in the open SGX market, is it Temasek will auto-deposit this $50,000 principal amount back to the persons's SGX-GIRO-linked bank account?!

Mr. IPO said...

Answer to Q1 - yes. Temasek must pay principal at end of 5 years back to investors. The reverse is true. If someone buy from the open market at 105% after IPO, then the yield drops as the interest every 6 months is still based on the par value and at the end of 5 years, he gets back the principal of 100% and not based on the 105% he paid.

Q2 - yes if it is held in CDP and is already linked to a bank account with CDP. Otherwise it will be via Cheque.

Q3- yes. Same as Q2 above.

Anonymous said...

Another 2 questions

1)Assuming if I am alloted $50,000 of this T2023 bond, and if the trading price on the open market on 26th Oct is example $1.05, so is it when selling this bond in my DBS Vickers online website is it the same way as selling any other normal ipo share?! But the brokerage online webpage when you click sell, the brokerage online webpage sure have a box that tells you to type how many units you want to sell, so if I want to sell all my $50,000 at $1.05, then how many units should I type in the quantity sell box? Is it type in 50,000??!

2) I noticed every share has a code in the brokerage online platform. So what is the code for this T2023 bond?!

Mr. IPO said...

Answer to Q1 - yes. Type in $50,000 but the likelihood of you being allotted $50,000 is pretty low.

Answer to Q2 - yes. Just search for it when the ipo closes. You should be able to find it.

Anonymous said...

Why do you say the chances of me getting alloted $50,000 of this T2023 Bonds is pretty low??

I am thinking of applying $500,000 for this T2023 Bonds tomorrow!

I am a middle-aged person.

Is it you think the balloting allocation ratio for the $500,000 applicants will be less than $50,000??

But 50,000 is only one-tenth of 500,000 and the website wrote got $200 million public tranche And may even increase if demand is good.

Another thing, in your write-up you wrote this T2023 Bond has zero risk and those people that invest in this bond can sleep well at night but why in another forum, I saw got some detractors they wrote this T2023 Bond is quite high risk??

What are the possible scenarios(if any) that Temasek could not back pay back the entire full principal amount to investors even after holding this T2023 Bond for 5 years till end 2023??

Mr. IPO said...

Balloting ratio - I think Temasek will favor small applicants. If you had $500,000 to spare, they would have assume you can get it from the placement tranche.

Who is the shareholder of Temasek? It is the Minister of Finance. If that also default, what you think will happen to the confidence in Singapore by global investors?

Anonymous said...

Mr IPO, you mentioned that one may use CPF Ordinary Account's money to invest the bond. Considering that Ordinary Account gives circa 3.5% interest rate, would it not be wise to just keep the money in CPF instead? I think bond price will be fairly stable so possible capital upside from that is relatively remote? Welcome your views.

Mr. IPO said...

Only those cash that earns 2.5% will be “worth it”. In addition, also need to factor in the transaction costs of using CPF investment account. I haven’t done the analysis but may not be worth the effort 🤣. While it is possible that bond prices may trade above par, it will only benefit those who got it through the placement tranche. Not worth it to “flip” for the public tranche as allocation likely to be low.

The Boy Who Procrastinates said...

Hi Mr IPO,

I have done the analysis in my recent post. Just thought of sharing this information to wider audience.

Apart from the one-time application fee, an investor would be subjected to a recurring cost of $2 per counter per quarter. This sums up to a fee of $8 per year.

Before computing the effective interest rate of the Temasek Bond, let's assume that a successful applicant was allotted $6,000 of bond, which is the allocated amount for approximately 82.5% of the issued bonds. Each year, the investor will receive $162 of interest. Net of the quarterly fee, the effective interest rate is 2.57% per year, a paltry gain of 0.07% instead of the expected 0.2%.

With the inclusion of the quarterly charges, the cut-off amount in which the effective interest rate of the bond is equivalent to that of CPF OA is $4,000. Any amount below $4,000 would incur a loss as compared to leaving the money in CPF OA untouched.

If one has to invest, it probably makes sense to invest using cash instead of CPF OA due to the quarterly fee that erodes returns.

Mr. IPO said...

Dear Boy,

Thanks for sharing!

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