Important Events
· In an effort to mitigate the financial effects of the Covid-19 pandemic, the European Central Bank (‘ECB’) launched a EUR 750 billion emergency bond purchase program last week. The program seeks to take planned purchases to some EUR 1.1 trillion, with the additional pledges worth approximately 6% of the euro area’s GDP. For the first time, debt instruments from Greece will be included. “Extraordinary times require extraordinary action,” ECB President Christine Lagarde said after the central bank’s emergency policy meeting last Wednesday.
· The Reserve Bank of Australia (‘RBA’) has reduced its official interest rate to an all-time low, attempting to shield the Australian economy from Covid-19 related headwinds that have buffeted global economies. The cash rate was lowered to 0.25%, a quarter percentage point reduction that comes as part of a series of measures intended to lower the funding costs across the financial system. The Australian government announced an AUD 66 billion economic stimulus package on Sunday on top of an initial AUD 17.6 billion emergency government stimulus package introduced more than a week ago.
· Last week, the Federal Reserve established new temporary U.S. dollar swap lines with various central banks including the Bank of Korea, Monetary Authority of Singapore and Banco Central do Brasil. These liquidity arrangements will supplement the Federal Reserve’s existing U.S. dollar swap lines with the Bank of Canada (‘BoC’), the Bank of England (‘BoE’), the Bank of Japan (‘BoJ’), the ECB, and the Swiss National Bank (‘SNB’).
Separately, coordinated statements by the BoC, the BoE, the BoJ, the ECB, the Federal Reserve, and the SNB revealed that the central banks have agreed to improve the effectiveness of providing US dollar funding. Starting today, 7-day maturity operations will be conducted every day and will continue at least until the end of April.
Interest Rates and Currencies
· The U.S. dollar appreciated sharply against the Singapore dollar as the flight to safe haven assets persisted. The USD/SGD currency pair was up by 2.5% to 1.4506 over the past week. The SGD 2-year Swap Offer Rate (‘SOR’) surged 30 bps to close at 1.07% while the SGD 10 year SOR climbed 41 bps to end the week at 1.66%.
· U.S. Treasuries continued to post gains last week as the risk-off sentiment continued to dominate amidst the global Covid-19 crisis. The U.S. 2-year Treasury yield was down 18 bps to 0.31%, while the U.S. 10-year yield dropped 11 bps to close at 0.85%.
Corporate Updates and New Issues
· Banyan Tree Holdings Limited (‘BTH’) has announced that Banyan Tree Hotels & Resorts Pte. Ltd. (‘BTHR’) – a wholly owned subsidiary of BTH, has signed a joint venture agreement with Myanmar Treasure Hotel & Resort Group Company Limited (‘HH’). The latter is the hospitality division under the HTOO Group of companies, a Myanmar holding company with businesses in trading, construction and aviation, among other sectors. Pursuant to the terms of the joint venture agreement, BTHR and HH shall incorporate a new company with each party holding a 50% stake. BTHR shall contribute its hotel management expertise and knowhow, while HH shall allow the joint venture (and its locally incorporated subsidiary in Myanmar) to manage 17 hotel properties belonging to HH. The joint venture company (or its subsidiary) shall also operate a HH owned hospitality school in Yangon currently known as Hotel & Tourism Training Centre to elevate the local hospitality talent pool.
Last Thursday, BTH updated the terms of its S$700m multicurrency debt issuance program as Credit Suisse (Singapore) and Maybank Kim Eng Securities have replaced HSBC as the arrangers and dealers of the program. Other amendments include the flexibility of including a delisting put option for new notes and a delisting call option for newly issued perpetual securities. The amendments were effective from 19 Mar 20.
· Singapore Airlines Limited (‘SIA’) has released its operating results for the month of February 2020. At the group level, the number of passengers carried was 2.18m, down 21.8% YoY. The passenger load factor came in at 69.1%, down 12.1 percentage points. Available seat kilometres – a measure of passenger carrying capacity, declined just 2.4% from a year ago, standing at 13,112.1 million seat kilometres.
This morning, the airliner announced that it will be cutting 96% of its planned capacity that would result in the grounding of nearly its entire aircraft fleet. The SIA group is taking active steps to shore up liquidity, including drawing on its existing credit lines and extending talks with several financial institutions for future funding requirements.
· Chip Eng Seng Corporation Ltd. (‘Chip Eng Seng’) disclosed on 17 March that its wholly-owned subsidiary – CES Education (China) Pte. Ltd. (‘CES Education China’) – had entered into a loan agreement with Dongguan Duowei Education Technology Co., Ltd. (‘Dongguan Duowei’) for the provision of a S$4.9m loan to the latter. The exchange filing notes that the provision of the loan is part of a larger potential investment which Chip Eng Seng is currently exploring with Duowei Group, pursuant to which CES Education China or its nominee intends to enter into a joint venture with the founders Cai Ruming, Luo Guanhua and Zhang Wendu. The Duowei Group comprises Dongguan Duowei - a company incorporated in China, its subsidiaries, associated entities and affiliates. Its core business is the ownership and operation of tuition centres providing extracurricular tutoring to elementary, junior and high school students. It also operates a network of enrichment centres which provide a wide range of activities.
About the larger potential investment: Chip Eng Seng intends to make a potential investment in Dongguan Duowei and eventually enter into a joint venture with the founders for a minority stake in the Duowei Group. The exchange filing notes, however, that the Duowei Group would have to undergo a series of restructuring steps such that on completion of the restructuring, the Duowei Group will own primarily the core business of Dongguan Duowei.
The loan agreement provides for a principal amount of S$4.9m, with the loan bearing interest at 7% per annum. The loan will be funded from Chip Eng Seng’s internal cash resources. The exchange filing notes that the aforementioned founders of Dongguan Duowei will sign a deed of personal guarantee, and will also enter into equity pledge agreements pursuant to which each founder will grant a pledge to CES Education China in respect of 30% of their respective shareholdings in Dongguan Duowei. The loan has a term of two-years from the rate of disbursement. In addition, the loan will become immediately due and payable should the aforementioned larger investment materializes or if CES Education China notifies Dongguan Duowei in writing that CES Education China will not be proceeding with the potential investment. In addition, CES Education China has the right to recall the loan at any time by providing at least six months’ notice to Dongguan Duowei.
· Aspial Treasury Pte. Ltd. (‘Aspial’) has disclosed that it would be redeeming the outstanding bonds linked to the company’s S$200m 5.30% bonds due 2020. The outstanding S$177.3m in aggregate principal amount of the bonds will be redeemed on 1 April 2020 pursuant to condition 4(a) of the bonds. Following the redemption, the bonds will be cancelled in their entirety.
Last Friday, the parent company of Aspial announced that certain controlling shareholders and related parties have been allocated approximately 87.5 percent of the entire issue of ASPSP 6.500% 20Mar2023 Corp (SGD), a S$50m note that was launched on 9 Mar 20.
· On Tuesday, Hyflux Ltd. (‘Hyflux’) informed market participants about meeting details relating to the proposed scheme of arrangement (‘SOA’). Creditors of Hyflux including holders of the HYFSP 4.250% 07Sep2018 Corp (SGD), HYFSP 4.600% 23Sep2019 Corp (SGD),HYFSP 4.200% 29Aug2019 Corp (SGD), HYFSP 6.000% Perp/Callable 2020 Corp (SGD) - Retail and HYFSP 8.000% Perpetual Pref (SGD) - Retail are invited to convene at 80 Bendemeer Road, Singapore 339949 on 22 Apr 20 - for the purpose of considering and, possibly agreeing to the Hyflux SOA. Noteholders may also email investor@hyflux.com for general queries or call the telephone support hotline +65 3157 7999 for further clarification.
In another filing on Thursday, Hyflux notified the exchange that it had received a letter of interest from FCC Aqualia S.A., a water management company based in Spain for a potential transaction involving the firm or its assets .
· Following Breadtalk Group Limited’s (‘Breadtalk’) technical breach of financial covenants in relation to its S$100m BREAD 4.000% 17Jan2023 Corp (SGD) bond issue, the company has launched a consent solicitation exercise. Breadtalk is seeking the consent of its bondholders to waive breaches of the Consolidated Tangible Net Worth covenant and the Consolidated Total Borrowings (Net of Cash) to Consolidated Tangible Net Worth covenant. It is also seeking to amend certain financial covenants pursuant to which, if consented to by bondholders, the Consolidated Tangible Net Worth of Breadtalk shall not at any time be less than S$50m (previously S$75m) from the quarter ending 30 June 2021 onwards and its ratio of Consolidated Total Borrowings (Net of Cash) to Consolidated Tangible Net Worth shall not at any time exceed 3.5:1 (previously 3.0:1) from the quarter ending 30 June 2021 onwards. In addition, Breadtalk is seeking to harmonize financial covenant definitions to exclude SFRS(I) 16 effects from the computation of the financial covenants and implement financial covenant holiday in respect of the relevant financial periods occurring within the period from 1 January 2020 to 31 March 2021. Finally, the company is asking bondholders for permission to insert a call option at a call price of 100.50 exercisable during the period commencing on (but excluding) 24 April 2020 and ending on 31 March 2021.
