Singapore Post Limited (“SingPost”) is tapping the bond markets again, this time round with a 5-Year bond at an initial price guidance (“IPG”) of 3.45%. The new SGD issuance is a fixed rate, senior unsecured bond and it is expected to mature in March 2027.
SingPost is Singapore’s leading postal service provider for over 160 years and today, it provides a wide range of services such as post and parcel delivery, ecommerce solutions, as well as logistics such as warehousing, freight and fulfilment. The Group has an extensive global footprint as it is located in 17 markets with 56 post offices worldwide as of last year. SingPost is also engaged in the property business, with its flagship SingPost Centre Mall and other offices achieving close to full occupancy as at 30 September 2021 despite the soft leasing market.
The Group currently has a credit rating of ‘BBB+’ (stable) by S&P. The new issue, however, is expected to be unrated. Proceeds from this bond offering will be used for general corporate purposes including refinancing of existing borrowings. The new bond has a make-whole call provision, where the issuer can choose to redeem the bond early in whole or in part. It may also be redeemed for taxation reasons at the option of the issuer, in whole but not in part, at 100.
For the first half of FY21/22 (“1H FY21/22”), revenues for SingPost grew by 3.3% year-on-year (“YoY”), while total operating profit before tax grew 28.4% from SGD 39.8m to SGD 51.1m. Across its business segments, SingPost’s logistics division grew the most by 184.4% from a year ago in terms of its operating profit, mainly driven by a strong improvement in its freight forwarding revenue under its subsidiary, Famous Holdings. However, operating profit for its Post & Parcel segment declined by 52.6% due to the absence of government grants such as property tax rebates and JSS. Going forward, the Group expects its Post & Parcel segment to gradually recover when flight capacity normalises.
In terms of its credit profile, SingPost has healthy liquidity with a net cash position of SGD 165.8m as at 30 September 2021. Total debt-to-asset ratio also improved slightly from 11.84% as at 31 March 2021 to 11.62% as at 30 September 2021. The Group still maintains a strong interest servicing ability despite a slight decline of its interest coverage ratio (EBITDA/Finance Expense) from 14.4x in March 2021 to 12.1x in September 2021. As such, SingPost has strong credit metrics and it remains well-positioned to pay off its debt obligations.
As for relative valuation, we think that the new issue is attractive, given that it is currently priced at 3.45% area (IPG) for a 5-Year senior unsecured bond. Comparing it to the SPOST 2.530% Nov 2030 that is currently yielding at approximately 3.21% with around 8.7 years left to maturity, we think that the new issue is more attractive with higher yield to maturity and a shorter remaining duration. However, investors should note that the final price guidance for the new bond would likely be lower than the initial price guidance.
Meanwhile, SingPost announced on 30 March 2022 that it will be raising SGD 250m through a perpetual bond ("perp"). The final price guidance ("FPG") is 4.350% and it is first callable on 6 April 2027 at par. The perp is callable at any date during the 3 months up to (and including) its first reset date on 6 July 2027. Following which, there will be a 25 basis points ("bps") step-up and it becomes callable on every distribution payment date thereafter, if the issuer decides not to redeem the bond by the first reset date.
There will be an additional step-up margin of 75 bps on 6 July 2047 if the perp is not called by then. Distributions are deferrable but cumulative, and the perp also contains both a dividend stopper and dividend pusher clause with a 6-month look-back period. This incentivizes the issuer not to skip distributions to perpetual bondholders unless they are unable to support payments. The perp is subordinated and has an expected issue rating of BBB- by S&P. We think that the pricing is attractive relative to other investment grade perpetual bonds. However, investors should be mindful of the potential non-call risks in 2027 given the low step-up margin.
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.
Our podcast series, Yield Hunters, is available on Spotify, iTunes Podcasts and Google Podcasts. We share our thoughts on new bond issues and hold discussions on the fixed income space. Listen to our latest episode below and follow us!