Saturday, October 20, 2018

T2023 S$ Temasek Bond

By now, quite a number of financial bloggers had covered the upcoming T2023 S$ Temasek Bond (the Bond), so I will just give my opinion from a Bedokian Portfolio investor’s point of view.

Bond Overview

Let us have a look at the details of the Bond:

Figure 1 – Overview of the T2023 S$ Temasek Bond1

As highlighted in my ebook The Bedokian Portfolio2, a bond is consisted of three basic components; the bond principal, the coupon rate and the bond maturity date. From the information in Fig. 1, the bond principal is at least Singapore Dollar (S$) 1,000.00 (for public offer, i.e. you and me), the coupon rate is 2.7% and the maturity date is on 25 October 2023 (five years).

So if a bond holder holds S$1,000.00 worth of the Bond, he/she will be getting S$27.00 a year, in two six-monthly payouts of S$13.50 each (S$27.00/2 = S$13.50). If the bond holder holds the Bond till maturity, he/she will get a total of S$135.00 in coupons, and the S$1,000.00 back.

The bond issuer is Temasek Financial (IV) Private Limited, and the guarantor is Temasek Holdings (Private) Limited. From the product highlights sheet3, the bond issuer is a wholly owned subsidiary of the guarantor. Both the issuer and guarantor are being rated AAA and Aaa by credit ratings agencies Standard & Poor’s and Moody’s respectively, thus making this an investment-grade bond.

The Bond will be listed on the Singapore Exchange (SGX), meaning it can be traded just like any other company shares and bonds (government and corporate).

The Bedokian’s Take

If you were following the bond selection criteria in the ebook4, this bond would suit you to a T, especially if you can get it during the public offering; at par value, investment grade credit rating, and at least five years to maturity.

However, as with any financial instrument, caveats in the form of risks apply. The product highlights sheet had mentioned a number of risk factors, some of which reflected what I had mentioned in my ebook5. Although the default risk (risk of non-payment of coupons and/or principal) is minimal (we all have heard of Temasek Holdings (Private) Limited), I would think two other risks, namely volatility risk and rate risks, apply to this Bond, and these two risks affect each other as well.

As you can recall, this Bond will be listed in the financial markets, thus it is subjected to demand and supply which results in market price changes, hence volatility risk. Rate risks refer to the impact of interest rate and inflation rate on the Bond; if both rates are higher than the coupon rate, then it is not worthwhile to hold onto the Bond, therefore the demand of the Bond may drop and along goes with the market price (back to volatility risk), ceteris paribus.

The Bond’s coupon rate is relatively lower than that of other corporate bonds’, granted that it has a shorter duration than the rest, but it is higher than government bonds of the same duration. Hence categorizing this Bond based on its coupon rate, I would place it between government and corporate.

If you want to invest in this Bond, do try to get it at the public offering stage and remember to adhere to the 12% limit rule, and if possible, hold it till maturity.

1 – Temasek. T2023-S$ Temasek Bond Offer. Bond Offer Summary. (accessed 20 Oct 2018)

2 – The Bedokian Portfolio, p29

3 – Temasek. T2023-S$ Temasek Bond Offer. Bond Offering Documents. Product Highlights Sheet. (accessed 20 Oct 2018)

4 – The Bedokian Portfolio, p100-101

5 – ibid, p33-34

Further Reading

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