On 16 November 2021, Temasek announced that they are offering a new tranche of 5-year bonds: T2026-S$ Temasek Bond. For bond investors in Singapore, this is the second time that Temasek is offering bonds to retail investors, the first being the T2023 S$ Temasek bonds issued in 2018.
Here are 6 things investors should know about Temasek’s latest bond offering.
#1 What Is The T2026-S$ Temasek Bond?
The T2026-S$ Temasek Bond is a five-year bond denominated in Singapore dollars. T2026 indicates the year when the bond is maturing and S$ indicates the currency it is issued in.
The bond will pay a fixed coupon rate of 1.8% per annum. Interest payments will be made every six months.
A total of $100 million of bonds would be offered to retail investors, while another $250 million of bonds would be available to institutional and accredited investors under placement. Additionally, if there is over-subscription, the total offer size can be increased to $500 million.
Retail investors in Singapore can look forward to smaller investment sizes, of as little as $1,000, and greater liquidity of these bonds as the T2026-S$ Temasek Bonds will be listed on the SGX Main Board on 25 November 2021.
For reference, the first retail offering of Temasek bonds – T2023-S$ Temasek Bond was issued in 2018 and was both oversubscribed and upsized. Based on the initial size, the bond was over 8 times subscribed, with about $1.6 billion of valid retail applications received. All valid applicants received some allocation, with those who applied for $6,000 and below receiving full allocations.
Given the demand for Temasek bonds then, we would likely see a similar demand for the bonds in the latest offering. In the event of oversubscription, it is likely that the offer size will be upsized. Temasek has also indicated that they aim to allocate as many bonds to retail investors as possible, similar to their allocation of the T2023-S$ Temasek Bond.
#2 Who Is The Issuer and Guarantor of Temasek Bonds?
Unlike the Astrea VI Private Equity Bond which was issued earlier this year, the Temasek bonds are backed by Temasek Holdings.
The bonds are issued by Temasek Financial (IV) Private Limited which is a wholly-owned subsidiary of Temasek Holdings (Private) Limited.
As a corporate entity, Temasek has been assigned an overall corporate credit rating of “Aaa” by Moody’s and “AAA” by S&P. The bonds have also been rated “Aaa” by Moody’s and “AAA” by S&P. These are the highest tier of credit rating by the respective agencies.
#3 How Does It Compare To Other Similarly Rated Bonds?
Other triple-A rated bonds available to Singaporean investors include Singapore Savings Bond and Singapore Government Securities. Here’s how the Temasek bonds compare:
|Singapore Savings Bonds||1.71% p.a. (Dec 2021 issue if you hold for 10 years)|
|ABF Singapore Bond Index Fund||1.82% (weighted average yield to maturity. No maturity period)|
|CPF Ordinary Account
CPF Special Account
|2.50% (only for comparison)
4.00% (transferring into CPF Special Account is a one-way process)
|Singapore Government Securities||1.25% (5-year bond. Issued on 1 Nov 2021)|
|Fixed Deposits||0.6% (36-month fixed deposit at Maybank)|
In the current low-interest rate environment, the T2026-S$ bonds offer one of the higher returns. This is followed by the December issue of the Singapore Savings Bonds (SSBs). (Do note that the November issue of SSB has a lower return of 1.45%)
However, unlike the SSBs, you cannot make an early redemption of your Temasek bonds. Instead, the T2026-S$ works like other listed bonds and bond ETFs, whereby we are able to sell them on the SGX at market prices if we want to cash out before the 5-year maturity period.
#4 What Are The Risks Of Temasek Bonds?
While Temasek is a highly rated company in terms of credit ratings, it does not mean that there are zero risks involved in investing in Temasek bonds.
For most bonds, the default risk of the company is most important, as we want to see our principal paid back at the end of the tenor. As the T2026-S$ bonds are backed by Temasek, a triple-A rated company, which is also the same credit rating as the Singapore Government. Thus, it is perhaps unsurprising that the first issue of Temasek bonds was oversubscribed by Singapore investors.
Some other risks we need to note include the interest rate environment, which may have seen the bottom and are slowly starting to creep upwards. We also need to note that when interest rates rise, bond prices tend to fall. If we need to sell the bonds in such situations, we may face losses.
We also have to determine other types of risks before investing, this may include liquidity risks, as it will be listed on the SGX and trading volumes may represent whether we are able to sell the bonds quickly. We also need to decide if we are comfortable with the 1.80% return, as any spike in inflation in the economy could see our real return diminishing. Reinvestment risk is another consideration – whether we may be able to reinvest the coupons paid out every six months at equally attractive interest rates.
#5 Why Does Temasek Issue Bonds?
Over the years, Singapore investors have seen an increased availability of bond options for retail investors, including the Singapore Savings Bonds, Astrea PE bonds and even bond ETFs. As Singapore’s bond market develops, having Temasek Holdings offer more corporate bonds to retail investors can help anchor both the retail interest as well as set an example for other companies.
On Temasek’s part, the issuance of Temasek Bonds also acts as a form of financial discipline. The change in bond prices can also signal potential changes to their credit quality and be an indicator of investor confidence.
#6 How Can Singapore Investors Apply Or Find Out More?
For interested retail investors in Singapore, we would need to have a valid individual CDP account and make our applications though 1) online banking services at DBS, POSB, OCBC or UOB or 2) mobile banking services of DBS, POSB or UOB or 3) at the ATMs of DBS, POSB, OCBC or UOB. Joint CDP accounts would not be eligible for the bond offering.
Under Public Offer (which is meant for retail investors), the minimum application is $1,000, or in multiples of $1,000. Each individual is only allowed one application, so multiple applications through different banks under the same individual would be invalid.
The Public Offer would be open from 16 November 2021, Tuesday, 9am to 22 November, Monday, 12 noon.
|Important Dates To remember|
|Tuesday, 16 November 2021 at 9am||The public offer opens|
|Monday, 22 November 2021 at 12 Noon||The public offer closes|
|Tuesday, 23 November 2021||Allocations for Public Offer will be made (if there is an oversubscription). Refunds will be made for invalid and partially successful applicants|
|Wednesday, 24 November 2021||Your T2026-S$ bonds will be issued. You can check your CDP account by then.|
|Thursday, 25 November 2021 at 9am||T2026-S$ bonds will begin trading on SGX.|
If you have further queries about the Temasek bonds, Temasek will be holding a live investor engagement webinar during the Public Offer period on Saturday, 20 November 2021 at 10.30am. You can register for the session here.
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