• We scan the local corporate bond universe on a relative value basis to discover bonds trading cheaper on a relative basis.
• In a follow up to our report on rising non-call risk for callable bonds, we name some perpetual bonds we find interesting even in the event of non-call.

In our previous report ‘Rising Risk of Non-Calls’, we discussed the rising risk of non-call in this low interest rate environment, which we mentioned could lead to potentially lower refix coupons for several callable bonds if they are not called. That said, we still find value in some perpetuals in the market, even if they’re refixed in the event of non-call.

Perpetual bonds: Some offer value over their senior counterparts even if refixed

GUOLSP 4.6% Perpetual Corp (SGD) – GuocoLand Ltd

GUOLSP 4.6% Perp (6.09% yield to call) has its next coupon reset date on 23 January 2025, refixing its coupon to the prevailing SGD 7-year Swap Offer Rate (SOR) plus the initial spread of 260.9bps and a coupon step-up of 100bps. Using the SGD 7-year SOR as at 23 April 2020 of c.0.8925%, the coupon will refix to 4.5% (vs 4.6% originally at issue) and represents a yield to worst (YTW) of 4.66% at prevailing prices, an attractive senior-sub yield pick up of 132bps to the GUOLSP 3.4% ‘25s senior.

ARASP 5.2% Perpetual Corp (SGD) – ARA Asset Management Ltd

All ARA perpetual bonds come with a 300bps step up at their respective refix dates and are among the highest yielding perpetual bonds in the market. We see value in the ARASP 5.2% PERP with an 8.57% yield to call and a yield to worst of 7.05%, representing an almost 300bps YTW senior-sub yield pick up to the Senior Unsecured ARASP 4.15% ‘24s. And, in the inverted ARA curve, the ARASP 5.2% PERP offers a 28bps spread pick up to the ARASP 5.65% PERP callable 238 days later. The ARASP 5.2% PERP resets on 19 July 2024 (2 years after the upcoming call date) at the prevailing SGD 7-year SOR plus the initial spread of 312bps and a step-up of 300bps.

STHSP 3.95% Perpetual Corp (SGD) – Starhub Ltd

Similarly, STHSP 3.95% PERP offers a coupon step-up of 100bps at its reset date of 16 June 2027 and will refix to the prevailing SGD 10-year SOR plus initial spread of 171.5bps. The resulting yield to worst of 3.78% is a modest 73bps yield pick up to the senior STHSP 3.55% ’26s.

We also find the FNN curve interesting within the consumer sector, with a similar market cap (S$2.08bn) to Starhub (S$2.39bn) and a lower gearing profile of 17.6% debt to asset (vs Starhub’s 44.0%) while trading at a more attractive spreads.