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Perennial's 3 year 4.65% bond: Good enough to buy?

Tuesday, October 13, 2015

A fellow blogger compared the 4.65% coupon offered with what we could get if we were to park our money in the Singapore Savings Bond (which is risk free) for 10 years.

Holding the SSB for 10 years would get us a yield of about 2.8% p.a. I have left a comment that, to be accurate, we should compare the coupon with what we could get in the SSB for 3 years.

Of course, the bonds are not strictly comparable since the SSB is really AAA rated as the borrower is the Singapore Government while PREH does not have a rating.

The question, then, is whether the coupon offered by PREH's bond compensates us for the risk we have been asked to assume as money lenders.

Perhaps, it would be better to compare this with another corporate bond. If we were to compare this offer with another corporate bond, we could compare this with the 7 years bond issued by Frasers Centrepoint Limited (FCL) earlier this year.

FCL's bond has a coupon of 3.65%. This offer by PREH is for a much shorter 3 years and has a coupon of 4.65%. If FCL were to shorten the holding period from 7 to 3 years, their coupon would probably have been much lower.

I have received several messages from readers asking if I think this bond by PREH is a good buy. Regular readers know that I won't answer such a question with a "yes" or "no".

I will say that a 4.65% coupon for a much shorter 3 years compared to FCL's 7 year bond which has a lower 3.65% coupon helps to compensate for the risk which I identified in an earlier blog post regarding PREH.

Related post:
FCL's 7 year 3.65% bond.
2. PREH: A nibble?
3. Singapore Savings Bond: Good or not?

The public offer will open for subscription at 9am on Tuesday and will close at 9am on Oct 21.


foolish chameleon said...

still contemplating. not sure if its worth the risk..
btw, these bonds are capital guaranteed right?
are the 3.75% guaranteed as well?
if so, whats the worst that can happen?

AK71 said...

Hi fooz,

We have to ask what is the risk that PREH could become insolvent and default. If that should happen, there is no guarantee that we could get back any of our money. So, there is really no guarantee. -.-"

starlight said...

All bonds except SSB carry some risk including the issuer becoming insolvent and default. It is whether we can stomach this risk based on the given coupon rate.
I am still pondering over this issuance too.

AK71 said...

Hi starlight,

The simple question to ask is what is the likelihood of PREH defaulting on their obligations in the next 3 years. Of course, getting a clear answer isn't easy.

Siew Mun said...

Put $1000 you will get in total $139.50 for 3 years and may lose $1000 excluding coupon received. Singapore and China property continues to sink and will not turnaround soon. Have to look at PREH gearing ratio versus project pipelines and land bank. This would give you an idea whether PREH can generate enough of income to pay you.

Nick said...

PREH placement tranche of up to S$100 million for three-year retail bonds which carry a fixed interest of 4.65 per cent per annum has been oversubscribed.

My question is will the bond price be affected by the impending interest rate hike? To me PREH is not in the same league as Capitamall or Frasers. Will the Company still be in existence or like what AK said face difficulty in meeting their obligations in the next 3 years?

At the end of the day I guess it all boils down to our risk appetite ie whether we can stomach the inherent risk for higher returns. I'm risk adverse, so I'll stick to the 'risk-free' SSB with possibly of rising to 3% pa (it's now 2.78% pa on average) if we hold them for 10 years.

AK71 said...

Despite increasing the amount available for subscription up to the limit of S$100 million to meet demand, the placement tranche was oversubscribed with approximately S$130 million of subscriptions received.

"The oversubscription for the placement tranche with subscriptions received of close to S$130 million on the first day of launch is a strong testament of investors' confidence in our quality portfolio, robust balance sheet and reputable sponsors," said Pua Seck Guan, chief executive officer of Perennial Real Estate.


AK71 said...

Yikes! 50% of my application money has been refunded on 22 Oct 15.
Compared to FCL's 7 year bond offered earlier this year, it seems that PREH's offer is more highly sought after. -.-"

AK71 said...

Perennial Real Estate Holding (PREH) is offering a 4 yrs 4.55% bond.

To see how it compares with its 3 yrs 4.65% bond, see:

Perennial 4.55% 4 years bond by LP.

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