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Singapore Press Holdings launches second perpetual note this year at 4.25% IPG

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Singapore Press Holdings launches second perpetual note this year at 4.25% IPG

source: https://secure.fundsupermart.com/fsm/article/view/rcms201742/singapore-press-holdings-launches-second-perpetual-note-this-year-at-4-25-ipg

Singapore Press Holdings, a leading media company and property owner, returns to the SGD market with a NC5.5 perpetual note.

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Singapore Press Holdings Limited (“SPH”) has announced a perpetual note offering at an initial price guidance (“IPG”) of 4.25%. Both the issuer and the perpetual note are not rated by rating agencies.

Similar to the SPHSP 4.500% Perpetual Corp (SGD), the terms and conditions of the perp follow those mentioned in SPH’s S$1 billion multicurrency debt issuance program dated 2 May 19. The note’s first call date is 12 May 2025. If the perp is not called on its first call date, the distribution rate would reset (in May 2025 and every five years thereafter) to the sum of the prevailing 5-year SGD swap offer rate (“SOR”), the initial spread, and the step-up margin of 100 basis points (“bps”). We provide our quick view on the issuer’s credit profile and bond pricing.

Recent highlights

SPH is celebrating its 35th anniversary this year and has grown to be a leading media company in Asia. The group’s flagship newspaper, The Straits Times, recently won five awards at the 2019 Asian Digital Media Awards including best in social media engagement. The awards seek to recognize the best publishers in each region. This year, there were altogether a total of 151 entries from 24 media companies at the Asian edition of the World Digital Media awards.

Net profit increased significantly to S$171m in the three months ending 31 Aug 19 (“4QFY19”), from S$36m in 3QFY19. This was largely driven by a fair value gain from its investment properties of S$95m during the quarter. Total revenue, however, declined marginally to S$241m from S$249 in the preceding quarter.

The media group recently announced that it will reduce 5% of jobs in its media division as part of its effort to streamline operations. After the restructuring exercise, staff costs will likely decreased from the present level of S$82m in 4QFY19.    

Recurring income from properties is expected to grow. After adding GBP134m of assets in April, SPH has become one of the leading players in the purpose-built student accommodation sector in the UK.

Income from the UK properties would expand if more international students, particularly Chinese students, continue to pursue higher education in the UK. Revenues would also increase if the pound continues to strengthen against the Singapore dollar.

In addition, SPH would likely recognize more recurring revenue from its stake in Prime US REIT. In July, SPH invested approximately USD60m for a 7.38% stake in the IPO of Prime US REIT, and shortly thereafter exercised its option to acquire a 20% interest in the manager of the REIT.

Operating cash flows also improved during the fiscal fourth quarter. Net cash flow from operating activities (“CFO”) swung from -S$42m in 3QFY19 to positive S$49m in 4QFY19, although CFO remained negative and nearly at the same level of -S$17m in FY19 and FY18. Compared to the previous quarter, CFO improved in 4QFY19 mainly because of the absence of a dividend payment.

SPH has a healthy liquidity position. The group’s cash position surged from S$206m in 3QFY19 to S$554m in the latest fiscal quarter. This level of cash and cash equivalents is more than sufficient to cover its short-term debt of S$411m. When measured over current liabilities, SPH’s cash ratio increased from 22% in 3QFY19 to 82% in 4QFY19.

The group’s leverage, defined as total debt (including perpetual securities) over trailing twelve month (“TTM”) EBITDA, climbed from 5.0x in TTM 3QFY19 to 5.8x in FY19 (5.4x if we exclude the S$150m SPHSP 4.5% perp). The drop in EBITDA from S$434m in TTM 3QFY19 to S$383m in FY19 contributed to the increase in debt multiple. Furthermore, an increase in non-current bank loans also pushed the gearing ratio higher.

In June, Straits Capitol Trust, which was indirectly wholly owned by SPH, entered into a facility agreement with OCBC and Standard Chartered Bank (Singapore) for a GBP205m (S$355m) secured term loan. The loan was secured by mortgages against 20 purpose-built student accommodation properties in the UK, and a corporate guarantee from SPH. 

Our measure of the group’s interest coverage ability weakened slightly in FY19. Adjusted EBITDA (EBITDA minus capital expenditures) over finance cost dropped from 9.3x in TTM 3QFY19 to 8.3x in FY19. We think this was driven by lower top-line growth that weighed on TTM EBITDA.

Bond pricing

During 4QFY19, SPH issued a S$150m perpetual note with the first call and reset date on 7 Jun 24. The reset rate is the sum of the prevailing 5-year SGD SOR, the initial spread of 261.2 bps, and the step-up margin of 100bps.

The SPHSP 4.500% Perpetual Corp (SGD) was priced on 30 May 19 and issued on 6 Jun 19. The initial price guidance for that perp was 4.75%, which eventually tightened to 4.5%. The note was well received by the market with an order book in excess of S$800m.

SPH REIT, the 70%-owned subsidiary of SPH, also issued the SPHRSP 4.100% Perpetual Corp (SGD) in August. The SPH REIT 4.1% perp was priced on 23 Aug 19 at an IPG of 4.30% that tightened to a coupon rate of 4.1%. Demand for the note was also high as the order book reached over S$1.3 billion for the S$300m issue. Unlike the SPH 4.5% perp, SPH REIT’s 4.1% perp does not have an embedded dividend pusher clause, which prohibits the issuer from deferring distributions to bondholders if it had paid dividends during a specified period.

The ask yields to call (“YTC”) on the SPH and SPH REIT perps have been falling since their issue dates (see Figure 1). The YTCs of the SPH 4.5% perp and SPH REIT 4.1% perp have dropped to 3.80% and 3.83% respectively as of this writing, with corresponding ask bond prices of 102.90 and 101.12. The drop in yields may be a reflection of the group’s healthy liquidity profile, cost cuts and improvement in operating income.   

Figure 1: YTC and prices of the SPH and SPH REIT perps

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Compared to the other SGD perpetual notes of similar first call dates, we think that the new SPHSP perp, at its IPG of 4.25%, is attractively priced among non-bank issuers (see Figure 2). The 4.25% IPG would rank at the higher end among perps of issuers with similar leverage. We have assumed an issue size between S$300m to S$500m for the new SPH perp, for us to calculate the pro forma adjusted debt (including perpetual securities) over asset of SPH post-issuance.

The FPLSP 4.980% Perpetual Corp (SGD) of Frasers Property Limited (“FPL”) has an ask YTC of 4.28%. The 46% debt-to-asset ratio of FPL is meaningfully higher than SPH’s 35.6%, assuming the new SPH perp has an issue size of S$500m. On the other hand, FPL has a much larger scale with total assets of S$33.6 billion, versus SPH’s S$7.1 billion. Assuming the final pricing of the new SPH perp doesn’t tighten to less than 4%, we think it provides decent value against the FPLSP 4.98% perp.

Figure 2: SGD non-bank perpetuals of similar first call dates

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Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

 

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