Seems the prediction is shaping up really well.
SIA will be releasing $500 mil worth of bonds, with the public being allocated $300 mil out of this and the rest going to institutional investors. Should the bond be oversubscribed, they will expand it up to $750 mil.
The minimum denomination is $1,000 which makes it affordable for most people. And you can apply it at your ATM or through internet banking like an initial public offering (IPO)
A low denomination will also allow you the retail investor to diversify their bond allocation.
The bond pays a coupon of 3.03% semi annually. At the end of 5 years, you get back your principal.
If SIA cannot pay the coupon, or the principal, they default on your bond. Then you will go through the same liquidation procedures that the Hyflux creditors are doing right now.
What you need to do is to access the ability for SIA to pay the interest on their debts.
SIA issued $600 mil worth of bonds last year at a yield pretty similar to the current one. That bond is not rated, and while it is not stated, I do assume that this bond is also not rated. This bond, issued in 2018, currently trades at 2.99%, which is not too far off this issue.
The yield is hardly exciting and perhaps a reflection of the credit worthiness of the issuer. This yield is slightly higher than last year’s hot Temasek 5 year 2.70% bond.
For reference, the yield on the 10 year SGS bond is 2.10% and the 5 year SGS bond is around 1.99%.
Still, maybe it is a good idea to take a look at SIA’s financials.
The following is some selected 10 year financial data that I have tallied:
Instead of profit or free cash flow, I decided to tally the operating cash flow before working capital, and net operating cash flow. Since we are purchasing a bond, which is a debt instrument, the company SIA has an obligation to pay the coupon or interest payment before they think of what they would do with the excess money, be it pay a dividend, reinvest in their business or retain it as cash. (to learn more about the different kind of cash flow, you can read my cash flow guide here)
We observe the operating cash flow before working capital and net operating cash flow to be many many times the interest payment on debt.
The net debt to asset also showed that in the past 10 years, SIA have been in net cash position (cash more than debt). However, this has been deteriorating. SIA is now in net debt position.
However, the level of debt is still very very low.
2 bond issues are coming due in 2020 and 2021, and it might be the case this issue is used to refinance one of the loans expiring in 2020.
6 days prior, SIA have announced that they have set up a $2 billion medium term bond program, which will be used to refinance existing borrowings, finance investments and fixed assets and for general working capital purposes.
Their financial position looks strong enough to pay the coupon payment. (If you want to compare this to Hyflux’s historical financial strength prior to their perpetual issue, you can take a look at this analysis that I did not long ago)
The following is the time table:
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