Monday, February 10, 2014

CMT retail bonds

Capital Mall Trust (CMT) made an announcement today that they are going to issue retail bonds. The terms of the bonds are as follows:

1. Years to maturity = 7 years
2. Interest = 3.08% pa, paid semi-annually on 20th Aug and 20th Feb, starting this Aug
3. Capital guaranteed if held till maturity since it is a bond
4. Issue price is $1.00 and the par value is $1.00. Should be in board lot size of 1000 shares
5. To ballot for it, you need a min of $2k, with incremental multiples of $1k 

You can ballot for it by going to ATM at 9am on 11th Feb 2014 and it’ll close at 12 noon on 18th Feb 2014. I think the process is the same as balloting for IPO shares through ATM. You pay the amount first, add on a fee of maybe $1 or so, then you wait for a few days after the closing date to see how many lots you have. The rest of your money that is not used will be refunded back to you. Your shares will be held in your CDP account and it should be able to trade on SGX once they start listing. As of now, I haven’t seen the prospectus yet (going to be lodged today), so you need to confirm some of the details mentioned here again by reading it on MAS OPERA site.

Good deal?

Let's see what's on offer at SGX. The most similar one to this bond is the CapMallA3.8%b220112 traded on SGX. The last done price on 10th Feb 2014 is 1.027, traded in board lots of 1000 shares. Let's see the terms of the bond:

1. Years to maturity = 8 years, maturity date 12-Jan-2022. Optional redemption on 12-Jan-2017.
2. Coupon yield = 3.8% pa. if it's not redeemed by 12-Jan-2017, it'll be stepped up to 4.5% pa. At current price using my way of calculating yield to maturity, you'll get 2.82 % pa to 3.8 % pa. See below for explanation **.
3. This is also a bond, so it's capital guaranteed if held till maturity
4. Issue price is $1.00, but the trading price is 1.034, so when the bond is redeemed, you'll lose $0.034. But all these are already included in my yield of 3.28% pa 

Thanks to sfry, whom I respect as someone who has vast experience in doing bonds and shares, there's an advantage in balloting for the new bonds even though it has lower yield. Firstly, it's easier to get more lots by balloting because like all pref shares and bonds traded in SGX, liquidity is an issue. But if you're just looking to get maybe less than 20k worth of bonds, I think it's not a problem. Secondly, getting through balloting only requires an admin fee of a few dollars (can't remember exactly how much, but I've a feeling it's just $1) compared to a xx% by paying the brokerage fees. Thirdly, there's a real possibility of Capmallasia redeeming back the already listed bond on 12-Jan-2017, leaving you high and dry. This new bond doesn't seem to have an early redemption, though it must be confirmed by reading the prospectus (which I haven't because it's not lodged yet).

There, all the facts are laid out bare. You decide.

** Let's clarify on the yield of capmallasia3.8% bond. If you buy it at 1.027 on 10th Feb 2014, and it matures on 12-Jan-2017, you'll get a yield of 2.82 % pa. If it matures on 12-Jan-2022, you'll get a yield of 3.8 % pa. These yields are calculated with the inclusion of a loss of capital due to the buying of a bond above par value


mike said...

Did you factor in the brokerage fee payable when buying on SGX when you calculated the yield?

la papillion said...

Hi Mike,

Nope, didn't include brokerage fees. It depends on how much your invested capital is, so I didn't include it. Let's say your brokerage cost is 0.35% to 0.6% of capital invested. Over 8 years, it'll be 0.04375% pa. to 0.075% pa.

You can subtract that from the returns to have a feel of how much the returns will be, net of brokerage charges.