Temasek, one of the Singapore government’s investment arms, recently announced the issuance of a bond – the T2023-S$ – to raise money to fund its ordinary course of business. What’s new here is that for the first time, Temasek is opening the bond to retail investors. This means that the general public can now invest in a bond issued by a AAA-rated institution, and opens up more options for investors to park their monies. Let us look at the salient aspects of the T2023-S$ bond, and then I will proceed to highlight three important considerations you should think of when considering…
Temasek, one of the Singapore government’s investment arms, recently announced the issuance of a bond – the T2023-S$ – to raise money to fund its ordinary course of business.
What’s new here is that for the first time, Temasek is opening the bond to retail investors. This means that the general public can now invest in a bond issued by a AAA-rated institution, and opens up more options for investors to park their monies. Let us look at the salient aspects of the T2023-S$ bond, and then I will proceed to highlight three important considerations you should think of when considering this bond.
Details of the bond
The T2023-S$ bond has a fixed interest rate of 2.7% per year, and pays a coupon every six months. It will mature on 25 October 2023, which is five years from now. The T2023-S$ bond is available for subscription in denominations of S$1,000, with a price of S$1 per unit. As an example, if you invest S$1,000 in the bond, you will receive an interest payment of S$13.50 every six months, up till the bond’s maturation.
Temasek is offering S$200 million of the T2023-S$ bond to retail investors, while another S$200 million is offered in a placement tranche to institutional investors.
Applications for the T2023-S$ bond opened on 17 October at 9 a.m. and will close at noon on 23 October. You would need two things to apply for the bond: (1) A bank account with DBS, POSB, OCBC, or UOB, and (2) a Central Depository, or CDP, account. The application can be done through three portals: (1) the ATMs of the four aforementioned banks; (2) the internet banking websites of the same banks; and (3) DBS and POSB’s mobile banking app.
By the evening of 25 October, you can check your CDP account to see if any bonds have been alloted to you. Trading of the bonds begins on the Singapore Exchange on 26 October.
Consideration 1: Stable source of income from top-quality issuer
This is a very good opportunity to subscribe for a bond issued by a AAA-credit rated institution, and the default risk here is very low as Temasek, being a Singapore sovereign wealth fund, has a good track record of issuing debt over the years to institutional investors.
The coupon of 2.7% provides a stable source of income every six months, and as long as investors do not attempt to sell the bond before maturity, they will not be subjected to interest rate risk which may affect the price of the bond when it starts trading on the Singapore Exchange.
Consideration 2: More attractive than bank deposits, and interest rate is in line with long-term inflation
As mentioned earlier, the T2023-S$ bond has a fixed interest rate of 2.7% per year, and pays the interest every six months. The T2023-S$ bond’s interest rate is 0.38% higher than the yield of 2.32% offered by a 5-year Singapore government bond at the moment, and is also much higher than the latest Singapore Savings Bond which has an average annualized interest rate at the end of the fifth year of around 2.22%.
Temasek’s latest bond also has a coupon rate that is in line with the long-term inflation rate of around 2% to 3%.
Consideration 3: But… it has a fixed coupon with no upside
An important factor to note is that any money you decide to commit to the T2023-S$ bond will be locked up for five years, assuming you do not sell the bond. During those five years, interest rates may continue to rise, meaning you may be able to invest in a security which offers a higher yield during the period. There is also no upside to the 2.7% coupon – even if Temasek registers a good performance on its investments, it would not pay more than the 2.7% coupon rate on the T2023-S$ bond. This is in contrast to an investment in shares of companies – if the company does better, it may increase its dividend payments over time.
A Foolish conclusion
All in, the new Temasek bond issue represents a very attractive low-risk fixed income proposition for an investor, and is definitely an investment worthy of serious consideration.
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The Motley Fool Singapore contributor Royston Yang contributed to this article.
The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore writer Chong Ser Jing does not own any of the securities mentioned.