Bond Express allows investors to acquire bonds at a lower cost, which is favored by a lot of investors. This time, we introduce two perpetual bonds on Bond Express, namely ESRCAY 5.650% Perpetual Corp (SGD) issued by ESR Cayman and BACR 8.300% Perpetual Corp (SGD) issued by Barclays Bank. The details of the two bonds are shown below:
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ESRCAY 5.650% Perpetual Corp (SGD) |
BACR 8.300% Perpetual Corp (SGD) |
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Issuer |
ESR Cayman |
Barclays |
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Issuer Credit Rating |
N.R |
BBB/A (S&P/Fitch) |
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Bond Credit Rating |
N.R |
BBB- (Fitch) |
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Next Call Date |
02-Mar-2026 |
15-Dec-2027 |
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Yield to Maturity |
5.67% |
7.78% |
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Yield to Next Call |
6.24% |
7.87% |
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Source: Bondsupermart Data as of 29 July 2022 |
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ESR Cayman
Company Background
ESR Cayman (“ESR”) is a logistics real estate developer and operator focusing on the Asia Pacific region. Some of its key shareholders include Warburg Pincus, JD.com, and SK Holdings. ESR became a HK-listed company in 2019 (Stock Code: 1821.HK), its current market capitalization reached HKD 85 billion. It is noteworthy that ESR was selected as a constituent of Hang Seng Composite Index and it is also included in the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect programmes.
The major business of ESR comprises of three segments. The first segment is investment. ESR earns rental income and seeks capital appreciation on properties directly held. It also gains dividend income and achieves value appreciation from investing on REITs. The second segment is fund management. The company earns recurring income such as management fees through managing its own funds and investment vehicles. The last segment is real estate development. ESR earns development profits through the building and sales of logistics properties.
Operation and Credit Highlights
As of December 2021, ESR’s assets under management amounted to USD 140 billion which ranked first in Asian property investment companies. ESR marked a total revenue of USD 360 million in 2021 which increased by 21.7% YoY; its EBITDA rose from USD 370 million in 2020 to USD 430 million in 2021, nearly half of it came from fund management. The overall track record is pretty good.
In terms of credit profile, consequent to the larger equity base and asset-light business model, ESR maintains its net debt to total asset ratio at a low level. As of December 2021, the ratio stood at 45.5%, suggesting the pressure from debt repayment is low. At the same time, the cash and cash equivalents of ESR totalled at USD 1.6 billion that is already more than enough to cover its short-term debt of USD 1.3 billion. Moreover, ESR reports an outstanding refinancing capability with an average borrowing rate of 4.1% in 2021.
Bond Investment
Although ESR is non-rated, its credit profile could match investment-grade issuers considering its desirable credit metrics. ESRCAY 5.650% Perpetual Corp (SGD) is available on Bond Express, with attractive yield to maturity of 5.67% and yield to next call of 6.24%.
The next reset date of this bond will be on 2 March 2026. If it is not being called, the coupon rate will reset to the prevailing 5-year Swap Offer Rate plus the initial spread of 4.73% and the step-up margin of 200 basis points. As of 28 July 2022, the reset rate was at 9.7%, higher than the perps' 5.65% coupon. We think that the high initial spread and step-up clause could offer some protection for investors.
Barclays
Company Background
Barclays PLC is a British multinational bank headquartered in London. Barclays is primarily listed on the London Stock Exchange (Stock Code: BARC) and secondarily listed on the New York Stock Exchange (Stock Code: BCS). The current market capitalization is about USD 31 billion.
Operation and Credit Highlights
As of 31 March 2021, Barclays recognized a total revenue of GBP 6.5 billion in 1Q2022, which is a 10% rise YoY. In 1Q22, operating expenses increased to GBP 4.1 billion due to litigation and conduct charges of GBP 520 million as well as provisions of GBP 320 million from the issuance of securities in the US. This caused the cost/income ratio to rise from 61% in 1Q21 to 63% in 1Q22. Barclays has no physical presence and undertakings in Russia, Ukraine, or Belarus, and will not face relevant risks.
Speaking of its credit, Barclays' CET1 ratio decreased by 130 basis points to 13.8%. The decrease was mainly due to share buyback. Nonetheless, we still find Barclay’s CET1 ratio to be adequate because it is higher than the 6.5% regulatory requirement. In 1Q22, Barclays had a liquidity coverage ratio of 159% that is above the regulatory requirements of 100%. Additionally, the group also has a higher minimum requirement for its own funds and eligible liabilities (“MREL”) position of 31.2% which is in excess of the regulatory requirements of 28.9%, hinting at a decent credit profile.
Bond Investment
The BACR 8.300% Perpetual Corp (SGD) is available on Bond Express with attractive yield to maturity of 7.78% and yield to next call of 7.87%.
The next reset date will be on 15 December 2027. If the bond is not being called, the coupon rate will reset to the prevailing 5-year SORA-OIS plus the margin (5.641%). As of 28 July 2022, the reset rate stood at 8.2% which is similar to the perps' 8.3% coupon. We believe that the high initial spread also offers protection for investors.
It is important to note that this bond demonstrates loss absorption features, thus, it is a CoCo bond—which would convert into ordinary shares if Barclays failed to meet capital requirements. Holders of CoCo bonds might need to bear part of the loss or a total loss of their investment.
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a position in ESRCAY 5.650% Perpetual Corp (SGD) and BACR 8.300% Perpetual Corp (SGD) and the analyst who produced this report holds a NIL position in the abovementioned securities.
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