Great Eastern Life announces new 15NC10 T2 Subordinated SGD bond at 4.25% IPG

The Great Eastern Life Assurance Company (“GEL”) announced that it is planning to issue a new 15NC10 (“15 years, non-call 10 years”) tier 2 subordinated bonds at 4.25% IPG. GEL is rated “AA-” with a stable outlook by S&P Ratings. The new issue is also expected to be rated “A” by S&P Ratings. The use of proceeds will be for general corporate purposes, funding working capital, and future growth plans.

Great Eastern Holdings (“GEH”) is a well-established leader in Asia’s insurance industry with a significant brand presence in Singapore and Malaysia. The Group has operations across Asia, mainly in Singapore, Malaysia, Indonesia and Brunei. GEH Group is a majority-owned subsidiary of OCBC, which has an 88.45% total interest (as of 31 Dec 2023). 

The group has four main operating subsidiaries – 1) The Great Eastern Life Assurance Company (“GEL”), 2) Great Eastern General Insurance (“GEG”), 3) LionGlobal Investors Limited Singapore, and 4) Great Eastern Financial Advisers. GEL became a wholly owned life insurance arm of GEH after a restructuring in November 1999. With a rating of “AA-” by S&P Ratings since 2010, GEL is one of the highest-rated Asian life insurance companies.

For financial performance, we primarily looked at GEH’s results in the fiscal year ended 31 December 2023 (“FY23”). The Group reported a 27% year-on-year (“YoY”) rebound in profit attributable to shareholders to SGD 774.6M in FY23 from SGD 610.0M in FY23. This was primarily driven by a net investment income of SGD 5,865.9M in FY23, recovering from a loss SGD4,926.2M in the prior year, as the Group saw mark-to-market gains across equities, bonds, and collective investment schemes.

On the other hand, insurance service results fell 30% YoY to SGD 574.8M due to higher expenses from reinsurance contracts that the Group held. Gross premium remained above pre-covid levels but dipped 12% YoY to SGD 16,329.8M from a post-covid peak of SGD 18,577.2M in FY22.The Group also recorded finance expenses from the issued insurance contacts at SGD 5,252.8M in FY23, down from FY22 finance income of SGD 5,028M. Overall, GEH’s embedded value, which measures the Group’s net asset value and the present value of future profits, dropped slightly by 3.2% YoY to SGD 17,319.5M.

In totality, earnings outlook remains stable for GEH with profits anchored by Singapore business, which continues to be the group’s largest profit contributor. Sales of regular premium product remains resilient while an eventual normalisation (un-inversion) of the yield curve may bolster the attractiveness of single premium products, which has been made less attractive relative to short tenor interest-yielding products. Sales growth has also picked up in 2H23, suggesting improving sales momentum as the macro backdrop improves and financial condition eases.

We find the credit profile of GEL to be healthy, like its parent company. GEL has a strong asset base of SGD 103.8B in total assets, as at 31 December 2023, making up the lion’s share of GEH’s SGD 109.0B total assets. The bulk of GEL’s total assets (59%) comes from fixed income instruments, of which nearly 52% are higher-quality, investment grade bonds. In addition, the capital adequacy ratios of GEH and GEL were 204.9% and 183.6% respectively, well above their respective minimum regulatory levels.

Total loans for GEH amounted to SGD 521.7M in FY23, rising by 6.6% YoY, of which nearly 72% are loans secured by collateral. These loans generally have a maximum loan-to-value ratio of 70%, which we consider to be conservative. Cash and cash equivalents for GEH were SGD 6,302.9M in FY23, falling by 34.3% YoY, primarily due to loss on sales of investments and changes in fair value. That said, cash levels remain sufficient to cover 1) total loans and 2) most liabilities (Excluding insurance contract liabilities, which account for the bulk of liabilities, the remaining sum amounted to SGD 3,043.2M). 

There are no close comparable peers in the SGD space. However, GEL's 2039 bond offers a yield pickup over strong-rated quasi-sovereigns like SPSP 3.400% 19Sep2032 Qsov (SGD) and TEMASE 4.0475% 05Mar2035 Qsov (SGD). Furthermore, we think GEL’s 2039 bond can be a good consideration for investors who want to lock in yields that are above the SGS, through an issuer with strong credit rating. 

With that said, investors should note the relatively higher duration risks present in such a long-tenor bond. Tier 2 securities are subjected to loss absorption upon trigger, although the CET1 and AT1 instruments would be utilised first prior to the activation of T2 securities for loss absorption.

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.