Call to action
Ascendas REIT combined a commitment to green standards with record-low interest rates to bolster its capital structure and add to its reputation as one of Singapore’s top issuers.
Singapore’s first green perpetual bond helped rebuild investors’ confidence after a series of missed call options, and still broke records with an ultra-low 3% coupon.
When AREIT opened books on the hybrids in September, most issuers were finding it challenging to meet investors’ pricing expectations. A plunge in local benchmark rates and jump in credit spreads, as a result of the coronavirus crisis, had created a particular problem for callable bonds, as rate resets meant investors could no longer bank on the notes being redeemed at the first opportunity.
Perps from Singapore’s REIT sector tumbled as much as five points after Ascott Residence Trust elected not to call its perpetual notes in June, and sentiment worsened further in August when Wing Tai Properties became the second issuer to skip a call.
AREIT itself had a S$300m 4.75% perpetual approaching the first call date on October 14, when it would reset to around 3%. Any new issue would have to match that level – a tall order in a weak market.
AREIT and sole lead manager OCBC Bank, however, spotted a window in September. Investors had begun to show signs of pent-up demand, ready to chase yields and willing to compromise on pricing, but only for high-grade credits.
With its A3 rating from Moody’s and pedigree background, counting state-owned investor Temasek Holdings as a major shareholder, AREIT was an excellent candidate.
The 3% target looked a stretch. AIMS APAC REIT had sold S$125m of perpetual bonds in early August at 5.65% while Keppel REIT (also Temasek-backed) priced a S$150m subordinated perpetual at 3.15% on September 7. AREIT had to do better.
On September 10, AREIT opened books at initial guidance of 3.25%, offering a premium around 130bp over its outstanding senior 2025 notes. The new bond, rated Baa2 by Moody’s, was also the first rated green perp in the Singapore dollar market, which expanded the investor base to more real money accounts.
Existing holders of AREIT’s outstanding perpetuals were able to swap into the new notes through a switch, encouraging loyal supporters to remain invested in the credit. With orders exceeding S$800m, pricing tightened by 25bp and closed at 3%, setting a new pricing benchmark for the subordinated instrument. Despite the tight pricing, institutional investors took a hefty 80% – unusually high for a structure more typically targeted at private bank clients.
The deal set a tight new benchmark for other issuers looking to tackle looming call options, and highlighted Singapore’s green ambitions as the first green perpetual bond from Asia’s real estate sector.
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