Aspial this morning splashed all over that they will be issuing a 5 year 5.25% bond to retail investors. For those that are unfamiliar with Aspial, they owned the Maxi-Cash pawn broking business, Goldheart Jewellery but in recent times being big as a property developer.
To me I have mixed thoughts of this bond issue.
The promotional narrative puts it in competition against the Singapore Savings Bonds, and its not wrong to measure against the SSB, which is based on Singapore Government Bonds. A 10 year bond yields around 2.6% while a 5 year bond yields 1.96%.
However, when comparing, we should take note whether the bonds are investment rated or not. In the case of the SGS Bonds which is backed by the Singapore Government, they are AAA rated while Aspial is currently not rated.
Aspial as an entity, presents more risk. A lower grade bond should have a more attractive yield to compensate the investor for taking more risk by lending them money.
Aspial issuance puts it squarely in the frame of Olam’s bond issuance, Genting Perpetuals which yield 5.25% in the past.
The yield for the duration is much higher compared to Capitaland Group’s retail bond issuance in the past. They, as well as Frasers Centerpoint have issued at around 3.5%+++ and below.
As investors watching this space, you can see how the different bonds are ranked based on implied risk of default and their corresponding interest reward.
If I do not look at the entity, 5 years at 5.25% is attractive considering the minimum of $2000 outlay in investment. If you held it to maturity, you are not going to lose money. That is provided the entity do not default.
I am a bit skeptical on the issuance. If I were a business, it would have been easier to borrow from a bank or private parties with deeper pockets where I know I can secure the adequate funding. If I were to issue to retail, it depends on the current market sentiments whether I am able to raise the sum that I need.
This seem more of a case they need money, but they couldn’t borrow from their usually lending sources, so hence the issue to the retail investors.
On the flip side, they may be heeding the call to make bonds accessible to retail investors. This is a good thing, but I would expect that most of the prominent issuers such as the REITS and the blue chip to take the lead.
Bonds like this issue are in competition as an asset class to equity and REITs. Equity and REITs are more volatile, may present a higher yield, have capital appreciation as well.
At this juncture, I would be leaning towards equity and REITs than bonds after this market drawdown in equity.
Taking a portfolio approach, having bonds reduces the volatility of an overall portfolio. However, I wonder if an Aspial bond reduces the risk of the portfolio in this case.