Singapore Exchange Limited (“SGX”) plans on issuing 3Y SGD senior unsecured fixed rate notes at the initial price guidance (“IPG”) of 3.60%. The new notes are expected to be issued on 26 February 2024, with a maturity date of 26 February 2027. The proceeds from the issuances will be used to refinance existing debt and for general corporate purposes. Do note that the new issuance will be available for institutional and accredited investors only.
SGX is a multi-asset exchange based in Singapore, providing listing, trading, clearing, settlement, depositary, data and index services. Among the exchanges in Asia, it has the most international exposure – with about 40% of listed companies and over 80% of listed bonds originating outside of Singapore. SGX classifies its business operations into five categories – Fixed Income, Currencies & Commodities, Equities – Cash, Equities – Derivatives and Platform & Others. SGX is listed on the Singapore Exchange itself, with the ticker S68, while its majority shareholder is Temasek Holdings (Pte) Ltd at an estimated ~23%.
For the half-year ended 31 December 2023 (“1H24”), SGX reported an increase in revenue year-on-year (“YoY”), with revenue rising from SGD 571m (1H23) to SGD 592m (1H24). The higher revenue was largely driven by increased volumes in commodity derivatives and over-the-counter (“OTC”) FX transactions, which was slightly offset by slower trading across both Equities segments.
Despite the higher revenue, SGX’s net profit after tax (“NPAT”) fell by approximately 1%, from SGD 284.6m (1H23) to SGD 281.4m (1H24). Across the period, SGX saw lower non-operating gains owing to lower other income and higher impairment losses, and higher taxes paid in 1H24. This is in addition to a 4.3% increment in operating expenses, which SGX largely attributed the increase to staff costs and technology.
In alignment with SGX’s yearly performance, its half-yearly performance has remained largely stable YoY although we see some volatility in trading volume. Over the past years, SGX’s earnings have remained stable and grown consistently, and we expect this to continue. Despite the market downturn in recent years, SGX’s performance remained resilient – and we believe the normalization in market activity will help with providing this stability.
Looking at its credit profile, SGX boasts of a healthy profile fitting the Aa2 long-term issuer rating given by Moody’s. The rating was just affirmed previously in November 2023, in which Moody’s highlighted the group’s robust profitability and low leverage, as well as its modest scale when compared to other major exchanges.
With a total cash of SGD 1.03b as of 1H24, SGX is in a net cash position – with gross debt of SGD 681m. Its gross debt to EBITDA remained roughly constant at 1.0x as of 1H24, against 1.1x from 1H23. The significant cash position that SGX offers more than sufficient liquidity and investors need not worry about any liquidity-related risks for company.
SGX has SGD 350m worth of debt maturing soon in March 2024, with another SGD 330m to mature in September 2026. As such, we believe that the upcoming new issuance will primarily be used to refinance the maturing debt – and tapping on its excess cash if the new issuance size is insufficient.
While the issuer is rated Aa2 (stable) by Moody’s, the new issue will be unrated. The new issuance has a make-whole call provision attached to it, while the issuer may redeem the bonds one month in advance prior to maturity (at par).
At the IPG of 3.60%, it seems fairly priced against other issuances of AA credit ratings. In comparison, FIRTSP 3.250% 07Apr2027 Corp (SGD) offers a slightly higher yield to maturity of 3.76% with a similar ~3 years to maturity. Given SGX’s partial ownership by Temasek Holdings and strong credit rating of Aa2, the new issue is also closely priced against several quasi-sovereign issuances (for example, TEMASE 3.785% 05Mar2025 Qsov (SGD) offers a yield to maturity of 3.51%). That said, investors have to note that the final price guidance is likely to come down from the IPG of 3.60%.
Considering the healthy credit profile, the new issue can be an alternative for investors considering the Singapore Government Securities (“SGS”) – especially with a good yield pick-up over the 2y SGS by about ~40 basis points.
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) hold a position in FIRTSP 3.250% 07Apr2027 Corp (SGD), and the analyst who produced this report hold a NIL position in the abovementioned securities.
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