Thursday, February 17, 2011

$6.4b scheme to boost Temasek's funding flexibility

TEMASEK Holdings has pulled off another trailblazing fund-raising exercise, bringing more depth to the local debt market and broadening its stakeholder base.

The state investment company announced yesterday that it is setting up a US$5 billion (S$6.4 billion) euro commercial paper programme to add flexibility to its funding options.

Commercial paper, one of the most common short-term borrowing instruments in global money markets, is generally sold to provide seasonal and working capital for corporations. It has a maturity period of one to nine months, compared with a longer-term bond that can have a tenor of 10 years or more.

As commercial paper is mostly issued by blue-chip firms, a degree of prestige is associated with it. It is also a low-cost alternative to bank loans.

While Western companies have an established and growing appetite for such instruments, the market in Asia is still very much in its infancy.

Temasek said this commercial paper programme, which is open to institutional investors, would complement its existing US$10 billion medium-term note programme launched in 2005.

To date, it has issued 11 bonds with tenors ranging from 10 years to 40 years, amounting to more than $10 billion - or just over 70 per cent of its medium-term note programme.

'This new Temasek euro commercial paper programme covers the short end of our yield curve, and complements our medium-term note programme for longer-dated Temasek bonds,' said chief financial officer Leong Wai Leng.

'It completes the key building blocks of our funding structure, and fulfils our funding strategy for a cost-effective, flexible and efficient balance of both long-term and short-term funding options.'

Investment bankers said the euro commercial paper market will give Temasek maximum flexibility to match its financing objectives.

'The euro commercial paper market is deep, and offers highly rated issuers the opportunity to fund across 16 currencies, in maturities of up to one year and in issue sizes to suit,' said Mr Keith Magnus, head of investment banking for Singapore and Malaysia at UBS.

'Temasek's outstanding AAA rating places it in an ideal position to tap the ratings-sensitive but cost-effective euro commercial paper market.'

Mr Jason Rogers, director of credit research at Barclays Capital in Singapore, noted that investor demand for such high-quality paper could come from banks trying to put their excess liquidity to better use.

The new commercial paper will be sold to only non-US persons outside the United States, Temasek said.

It remains to be seen how soon Temasek will offer debt instruments to small investors. Ms Leong said last year that it had 'been exploring measures to make it practical to offer corporate bonds to retail investors in Singapore'.

'If and when these measures materialise, we will certainly consider inviting Singapore retail investors to participate directly in our future bond offerings.'

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