CapitalMall, one of the 2 oldest REITs in Singapore issues a 3.08% 7 year bond.
- Fixed Interest (coupon) of 3.08% per annum. The coupons will be paid half yearly on 20th Feb and 20th Aug each year
- From 2014 to 2021
- S$150 million will be issued to public
- Offer starts on: 11 Feb 2014 9 am
- Close on: 18 Feb 2014 12 pm
- Apply through: ATM at DBS, POSB, OCBC, UOB
- Minimum investment amount: S$2,000 (incremental multiples $1,000)
- Joint Lead Managers and Book Runners: DBS, OCBC and UOB
A bond is different from a REIT. It is an IOU. You borrow money to CapitaMall. They take the money to work in their business. The coupon you get is fixed for this 7 years, it will not increase it will not fall.
If you held this amount for 7 years, you will get back your principle sum.
You can choose to sell off the bond or buy the bond when it is listed on the Singapore Stock Exchange (SGX). When you sell off within this 7 years, you may make or lose money.
CapitaMall is a rather large company, but even then it carries the risk that it will default on paying you the coupon and back your money. As a debt collector, you have to access the issue.
How does this compare to a government bond (AAA rated) with the same 7 year duration? You can see that a 7.3 years to maturity bond yields currently 1.9% which is like 1.18% lower than this.
Interest rates may be rising, and Capitamall may be using this time to lock in some really low interest debt.
The decision to purchase or not depends on
- Whether you need a low volatility, predictable allocation
- Whether you need a low correlated asset in your portfolio allocation
- If you are very risk adverse
- How long you need this money to be locked in