SIA yesterday announced a tranche of S$50 million SIA bonds for the public.
The bonds, which will be issued in denominations of S$1,000 each, will give interest at the rate of 2.15% p.a. paid semi-annually. The Bonds are expected to be issued on or about 30 September 2010 and will have a term of 5 years from their date of issue.
The minimum subscription is $10k and the application can be done via ATMs of DBS, UOB and OCBC. Application starts today and will end on 28th September at 12 noon.
If you own these bonds, you will be able to sell them in the secondary market on SGX. However, if no one wants to buy/sell, liquidity might be poor.
For more information and risk disclosures, you can refer to the SIA bond offer information statement (OIS) here. Instructions on how to apply for SIA bond via the ATM can also be found inside.
Do note that for bonds, one risk is the risk of the issuer (in this case SIA). If SIA goes bust, it is possible to lose 100% of your investment.
If this SIA bond offer shows high demand, we might start to see more of these offerings by other companies in the future.
Usually, the retail investor in Singapore has limited access to corporate bonds as they require a minimum of $250k.
There are a few stat board bonds (LTA, HDB) listed on SGX in denomination of $10k but liquidity for them is very poor.
Other options include Singapore government bonds which an indiviual can can apply online through ATM ($1000) for primary issuance and will be held in CDP. However, the rates for these are very low now.
Smaller Bond Notes Now Available (Today)
16 comments
Jasmin says:
September 22, 2010 at 11:56 am (UTC 8)
Is this coupon rate reasonable and if this type of bonds is risky?
Corporate bonds despite the min block size of 250k offers lousy yield after factoring in the fee charged by the bank.
The Watchman says:
September 22, 2010 at 12:19 pm (UTC 8)
The yield is estimated around 1.4%.
lioninvestor says:
September 23, 2010 at 12:20 am (UTC 8)
Hi Watchman,
Where did you get the 1.4% from?
The Watchman says:
September 23, 2010 at 9:52 am (UTC 8)
Comparing with SGS I reckon the spread would be 20bps or more…since SIA is a corporate issue of ‘higher’ risk. It should be more attractive otherwise who wants to buy.
Disclaimer: it is agak agak and should not be taken seriously.
lioninvestor says:
September 23, 2010 at 9:55 am (UTC 8)
Hi Watchman,
They already announced the coupon rate is 2.15%.
If bought at face value, investors would be able to get that kind of yield.
The Watchman says:
September 23, 2010 at 11:48 am (UTC 8)
Yes if it is bought at face value,ie $1000 and the coupon and yield rate will be the same. I was thinking it was to be subject to bidding. sorry for misleading you.
lioninvestor says:
September 23, 2010 at 7:33 pm (UTC 8)
Yes, there’s no bidding. If demand is more than supply, there will be balloting instead.
Tattooedbanker says:
September 22, 2010 at 9:33 pm (UTC 8)
the coupon rate is reasonable for a company like SIA where the chance of default is low. if i rem correctly, there was a swiber bond offering recently offering 5+% in coupon rates. charges wise i think for IPO bond is not too bad, they would be at most a 40-50pips difference, but if you are buying/selling a secondary bonds then yes, the fees might be excessive as you dunno what kinda spread your banker is taking off you.
just wanted to offer my 2 cents worth on bonds, there is alot of misunderstanding from people that i might who believe that bonds are super safe. which of cos isn’t true, as there is always a chance of default where one can lose every penny, but another risk i see is that we are kinda building ourselves towards a bond bubble in the next year or so. now when interest rates are low, everyone is touting bonds, but people forget that interest rates can and will go up, esp when inflation starts creeping in. with an almost non existence secondary bond market in sg, if/when interest rates goes up, there will be even fewer buyers and you gotta sell them at a bigger discount. end up you might not even earn anything or even make a loss.
Wilfred Ling says:
September 23, 2010 at 9:16 am (UTC 8)
There is no interest rate risk if the bond is held to maturity. Redemption at maturity by the issuer is guaranteed at maturity. Non-redemption by issuer at maturity is considered a default.
Roy says:
September 23, 2010 at 9:40 am (UTC 8)
Wilfred Ling,
Yes there is, when interest rates rises, that fact that your investment is yielding much less than bonds issued at that point means that your are holding on to a “lousy” investment with below market yield. By holding, you compromise your liquidity and lose out on possible gains.
In short, when interest rates rises by 1%, a gov issued bond for 5 years may pay greater coupon. That’s your risk.
Wilfred Ling says:
September 23, 2010 at 10:26 am (UTC 8)
In finance, interest rate risk for bonds refers to the risk of realised capital lost in nominal terms. Holding to maturity has no capital lost provided there is no default. What you are referring to is called opportunity cost, not interest rate risk.
Roy says:
September 23, 2010 at 11:31 am (UTC 8)
Hi Wilfred,
In finance, risk is the measurement of uncertainty. So interest rate risk is the uncertainty associated with interest rates that could result your investment performing in a manner that is less than expected. Therefore its not just a matter of realization of gain or loss that matters. The opportunity cost of not being able to capitalize on better investment opportunities.
To explain this in another way, regarding the issue of holding to maturity, if interest rates rises, your discount rate for your future cash flow rises. Therefore your present value of your future cash is worth less. That is your interest rates risk impacting actual realized cash.
Mike says:
September 26, 2010 at 2:11 pm (UTC 8)
Wilfred is right. There is no interest rate risk if you plan to hold the bond till maturity. Thus yield to maturity is the return you will get if you hold till maturity regardless of interest rate movements UNLESS the issuer defaults.
If you dont plan to hold till maturity, then you need to consider interest rate movements. Thus there is interest rate risk.
Contact me if you need further explanation.
WAN WAI FONG says:
October 13, 2010 at 9:25 am (UTC 8)
I purchased $10,000 SIA BONDS thru POSB ATM. Others had received Notice from The Central Depository informing them the bonds has been credited. What has happened to mine. If not successful, why the money was not returned to my POSB A/C??
lioninvestor says:
October 13, 2010 at 11:23 pm (UTC 8)
Hi Wai Fong,
You can create an online account so that you can check your CDP holdings.
http://www.cdp.com.sg/main/index.shtml
If you had applied correctly, you should have been allocated the SIA bonds.
YFS says:
April 23, 2011 at 12:28 pm (UTC 8)
Hi
For LTA stat board bond 4.17% 2016 (15Y) does anybody know whethere is there is a call back clause? Otherwise is there a place where we can download the bond prospectus which should be issued around 2001? Thanks.