Malaysia’s Genting has taken full advantage of the boom in demand for perpetual bonds this year to fund its Singapore operations. Its bumper fundraising also set records in a busy year for Singapore’s local market.
Malaysia-based gaming and leisure conglomerate Genting has had a bumper year of fundraisings in Singapore, Malaysia and Hong Kong. The group has not only been busy refinancing and managing its existing debt profile, but also building a war chest for further growth from both acquisitions and organic expansion.
It is a calculated move to take full advantage of an unusually conducive financing market, locking in competitive funding at a time when benchmark rates are extraordinarily low and markets are awash with liquidity from funds hunting for yields.
Genting’s fundraisings this year, however, have done far more than that. The S$1.8bn (US$1.47bn) 5.125% perpetual bond in March significantly raised Genting’s profile in the capital markets – and also underlined just what was possible in Singapore’s local bond market.
That deal was a trailblazer as it drew an order book of S$6bn book – the largest the Singapore-dollar market had seen at that time. While illustrating the development of the local debt market, it was also a harbinger of things to come.
The hybrid remains the largest single-tranche issue in the city’s local currency market, even though the record S$6bn order book has since been smashed by a Tier 2 bond from ABN AMRO – again a subordinated issue.
Genting used its growing fame in Singapore, where it opened the popular Resorts World Sentosa integrated casino project in early 2010, to capitalise on the surging demand for higher-yielding investments.
Currency inflows had pushed Singapore’s benchmark rates to near all-time lows in the first quarter of 2012 as global investors looked for a Triple A safe haven from the European sovereign crisis and, at the time the deal priced, the 10-year government benchmark was returning just 1.53%.
Big surprise
For the company, the decision to go to the perpetual markets stemmed from a need to get equity treatment and to avoid threatening the group’s Baa1/BBB+/A– credit rating by loading on too much debt, given its ambitious debt-funded acquisition plans.
Genting Singapore, the separately listed owner of the Sentosa casino resort, is rated Baa1/A– (Moody’s/Fitch).
“Issuing perpetual subordinated capital securities allowed the funds to be treated as equity, putting the company’s balance sheet in a strong position,” a Genting Singapore spokesperson told IFR.
“The group will use the funds raised from the perpetual subordinated capital securities to capitalise on any suitable investment opportunities and future growth,” she added.
Genting’s deal revealed that Asian investors – Singapore accounted for a bulk of the order book, but 42% of the deal went overseas, including about 25% to Malaysian buyers – were willing to take subordination and duration risk in return for a higher yield.
The Baa3/BBB rated notes are callable after 5.5 years, but come with no change in coupon until September 2022, when the rate will increase 1.0%.
That structure won them equity treatment from an accounting perspective, while Moody’s and Fitch each allocated 50% equity credit to the notes, thus negating any impact on the group’s gearing ratio.
The terms built on recent deals in Singapore from the likes of Olam International and Singapore Post, but took the perpetual bond market a step further with the city state’s first subordinated perpetual.
It was, however, not all plain sailing. In keeping with its approach to other funding sources – and after self-arranging several syndicated loans – Genting took the deal to the market without indicating the size of the issue.
Investors generally prefer to know an indicative size as it allows them to estimate demand for the bonds in the secondary market. However, Genting kept its leads and would-be investors in the dark until the last minute when it decided to go for S$1.8bn.
“Genting is a sophisticated issuer,” said Clifford Lee, managing director and head of fixed-income treasury and markets at DBS Bank. “When it decided on a perpetual issue, it was all prepared before coming to us. Genting had done its own rating and it was already well versed on what a perpetual issue would entail.”
CIMB, DBS, Deutsche Bank, HSBC and JP Morgan were the bookrunners.
However, the sheer volume of the perps flooding the market left the issue susceptible to any selloff, and a bout of indigestion that lasted some two months brought Singapore’s perpetual issuance spree grinding to a halt.
The bonds sank on the break and stayed under water for two weeks. They took another tumble after Genting sold more perpetuals to retail investors, although the company – aware that another lot of such paper would put more pressure on the outstanding paper – acquiesced to a smaller size of S$500m than the S$700m it had originally targeted.
Singapore’s regulators added more cold water in May, with a stern reminder that retail investors needed to be aware of the additional risks involved in buying perpetuals. The notes dipped below 97.00 in June, and only regained par in mid-October.
After Genting’s retail-targeted deal, no perpetuals were launched in Singapore until mid-July. Since then, however, companies, including Hotel Properties, Ascendas and Mapletree, have priced such bonds in the city state’s market, emphasising the appeal of the product.
The perpetual issue may a double-edged sword for Genting, but it is emblematic of a company that is quick to take advantage of funding windows.
Parent Genting made a rare foray into the ringgit bond market with a M$2bn (US$652.8m) two-part bond in June, locking in long-term funds at competitive rates.
Subsidiary Genting Hong Kong – formerly known as Star Cruises –recently secured a US$300m three-year loan facility from Bank of America Merrill Lynch, CIMB and Maybank, according to a stock exchange filing.
That came only two months after Genting Hong Kong sealed another US$600m self-arranged seven-year borrowing. That loan, which refinanced a 2010 facility of the same size and was also for general corporate purposes, came from BofA Merrill, Credit Agricole, DNB Bank, HSBC, Maybank, OCBC, RHB and Sumitomo Mitsui Banking Corp.
Fast mover
The latest loan is for general corporate purposes, but talk of acquisitions continues to swirl around the group since Genting applied to increase its stake in Australia’s Echo Entertainment in June.
Credit analysts had estimated in April that the parent’s war chest could amount to US$4.9bn at year’s end, paving the way for major developments and acquisitions it has been eyeing, with particular focus on Japan and Mongolia.
Genting Singapore, however, said in September it would dispose of its 4.8% Echo stake, and that announcement lifted the former’s share price, which had been depressed since April when the Singapore Government unveiled more restrictions for the two casinos operating in the city state.
It was also just after that sale announcement that Genting saw its perpetual bonds stage a recovery from below par.
Traders and bankers said the two developments were not linked. “Almost everything in the Singapore secondary markets has moved up, except Genting,” said one trader. “It was almost natural that the private bankers and real-money funds would turn to Genting next.”
On October 10, Genting’s perps crept up a quarter point to 99.5/100 and, two days later, the Genting paper pierced through to 100 mid-spread, and has been climbing steadily since, It was at 100/100.50 on October 19. It has been a rocky ride, but there is now light at the end of the tunnel.
So far, Genting has not made any major acquisitions, but it is clear that it has certain targets. “The company is seeking new projects that are in line with our core competency of developing and operating large-scale integrated resorts,” the spokesperson said.
This points to more fundraising activities and, with a well-recognised and coveted name in the Asian markets, there will always be takers for its debt.
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