Saturday, January 22, 2011

Retail investors chase CapitaMalls bonds

INVESTORS' appetite for alternative ways to make their money work harder is not letting up, judging by the response to CapitaMalls Asia's (CMA) bond issue.

The shopping mall developer, which is using the proceeds to invest in new developments and for other general corporate purposes, said yesterday that investors with funds worth $181.7 million chased the bonds worth $100 million reserved for retail investors.

This means the public offer for the one-year bonds that pay 1 per cent a year and the three-year bonds that pay 2.15 per cent was about 1.82 times subscribed.

The placement tranche - also of $100 million - was fully subscribed, CMA had announced last week.

Saving deposits are now giving consumers near-zero interest rates, though corporate bonds - instruments offering better yields - are somewhat riskier.

Said CMA chief executive Lim Beng Chee in a statement: 'We regret that we were not able to fulfil all the demand. The support we've received will reinforce our resolve to offer retail investors more opportunities to invest in our future series of bonds.'

Still, CMA's retail offering was less popular than Singapore Airlines' five-year bond issue last year, which was 2.3 times subscribed by 'mom and pop' investors.

Said Mr Clifford Lee, head of fixed income at DBS Bank, which managed both the SIA and CMA offerings: 'For retail Asian bond offerings, about two times covered is considered quite well-received.

'So CMA's is right about there, and I would say the reception by investors has been pretty good,' he added.

Mr Lee said there will be more corporate bonds for retail investors in the pipeline this year, and that they will span various industries and have mostly short- to medium-term tenures.

Some experts have urged caution on the amount that investors are putting into bonds, given the growing possibility that inflation may rear its ugly head and push up borrowing costs. Bonds tend to rise in value when interest rates drop, and drop in value when interest rates rise.

With rock-bottom interest rate levels, which will seemingly go nowhere but up later, bonds could suffer as a result.

'The important thing for investors is to have a balanced portfolio,' Mr Lee reiterated. 'We are not telling investors to forgo equities, but to introduce some fixed- income play into their holdings.'

In CMA's prospectus, investors are cautioned that the developer is subject to interest-rate fluctuations that could affect a portion of its consolidated debt, which is on a 'floating rate' basis. 'There is no certainty that the interest rates will not increase to the detriment of CMA,' it noted. 'Consequently, the interest cost to CMA for the floating interest debt will be subject to the risk of interest-rate fluctuations.'

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