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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:
1. 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.
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