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Mr IPO: Perennial Real Estate Holdings Limited – 4.65% 3 years
Aspire, Hot Picks | 19 October 2015
By: Mr.IPO
Articles (33) Profile

 

Perennial Real Estate Holdings Limited (“PREH” or “Issuer”) is offering up to $150 million of three-year bonds with an interest rate of 4.65 percent. The OIS and product highlight sheet can be found here. You should read at least the product highlight sheet (“PHS”).

The key terms are as follows:

Amount: Up to $150 million

Interest rate: 4.65 percent fixed

Interest Payment date: Twice a year on 23 April and 23 October

Maturity date: 23 October 2018

Manager: DBS Bank

Ratings: Not rated

CPF application: Not allowed

SRS application: Not allowed for initial application but may purchase post listing

Minimum application: $2,000 for public tranche and $100,000 for placement tranche.

Timeline of Key Events

Background Information on the issuer

I will not repeat what you can find in the PHS or OIS. In a nutshell, PREH is a property developer and investor with mature and developing properties in Singapore and mainly China. It has a “blue chip” name of local tycoons supporting PREH, such as founders of Wilmar and OSIM.

Nature of bonds – what exactly are you looking for?

When we invest in bonds, we are trying to solve for the answers to the following questions:

  1. Do I like the coupon rate?
  2. Can i afford to hold the bond till maturity?
  3. Can the Company pay me the regular interest coupon twice each year?
  4. Can the Company pay me back my principal at maturity?
If all your answers to the above questions are “yes”, then the bond is suitable for you.

How is PREH expected to be performing over the next few years?

PREH is expected to do well for the next three years, experiencing high growth every year. CIMB has a Add rating to PREH. The research reports are attached here and here.

You can see above that while equity investors is expected have a nice share price upside but their expected dividend yield is less than one percent!

Debt level

The Company is highly geared. I am not going to pretend that it is not. Having said that, I believe the current debt is manageable. You can see from the long term solvency ratios below that the Company is very highly geared.

Mr IPO’s views

I am currently trying to construct a bond portfolio to generate passive income. I will share that in my SRS blog shortly.

What I like about PREH bonds is as follows:

  • Strong management with good track record
  • PREH is forecasted to do well for the next three years (see research report)
  • Assets with SGD inflow will help hedge the bonds naturally. RMB is also expected to be stable against the SGD
  • 3 years fixed rate of 4.65 percent sounds about right. I can redeploy the cash after maturity if interest rate goes up by then
My key concerns will be the over-geared balance sheet but i am optimistic that 50 percent LTV is adequate to protect my unsecured bonds.

If you don’t have the holding power, then this bond is not for you.

Happy Bonding. Mr. IPO is vested through the placement tranche.

Mr. IPO has been covering companies listing in Singapore since July 2007. His IPO blog can be found here. All views and opinions found on his blogs are personal and can be very biased.

Please click here for more information about this author.


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