Martin Lee @ Sg
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F&N Bonds Early Redemption or Default

It used to be that investing in bonds is a pretty straight forward process. You buy a bond, collect coupons every year, and the bond gets redeemed when it matures. This happens as long as the company does not go bankrupt and default on their bonds.

Recent developments in F&N have their bondholders up in arms over their F&N bonds.

Due to F&N’s spinning off of Frasers Centrepoint, certain covenants in the F&N bonds will be breached.

As a result, F&N has taken a hardline approach of seeking an early redemption of their bonds, with a certain prepayment fees to be paid to all bond holders. The bonds that are affected include:

  • S$150m 3.62% due 2015
  • S$108.25m 5.5% due 2019
  • S$200m 6.00% due 2019
  • S$50m 2.45% due 2015
  • S$220m 2.48% due 2016
  • S$80m 3.15% due 2018

The last two F&N bonds listed above are the ones that were sold to the public back in 2011 and are listed on SGX.

The problem with the early redemption is that the proposed redemption prices for some (or most) of the bonds are less than their market value (before the exercise was announced). For example, F&N’s 5.5% notes due 2016 would get around 103 cents on the dollar versus the market value of 107.

This poses a problem for institutional investors, who face a mark down on the value of their holdings. Many are unhappy because the redemption offer is practically forced on them. If they do not accept the offer, F&N will do a technical default of their bonds and redeem them at par, which is even worse.

The early bird deadline is on 7 November 2013, while the consent exercise ends on 23 November 2013 with a bondholder meeting scheduled for 14 November 2013.

F&N Plays Hardball with Bond Investors (Reuters)

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