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New Frasers Property 4.49% Retail Green Bonds: Worth Buying?

Finally.

An SGD retail bond truly worth looking at?

I’m not going to lie. The new Frasers Property retail green bonds are probably one of the better retail bonds.

What’s a green bond? A green bond is specifically used to raise money to invest in environmental projects — or green projects. That’s what Frasers Property intends to use the money for. It’s not the first time Frasers Property has raised money from green bonds. In fact,
since 2018, this company has raised over S$8 billion of green loans and bonds.

Some stats about the new Frasers green bonds:

  • Frasers
    Property plans to raise up to S$420 million (up to S$650 million)
    five-year green bonds
  • The
    yield is 4.49%
  • Deadline
    to apply is until 12 noon, Wed, 14 Sep 2022

The thing is, the last time Frasers Property issued a retail bond was back in 2015. That bond was a seven-year bond yielding 3.65%. Not too exciting.

And Frasers Property had fully paid back these bonds earlier this year.

I mean, what I’m saying is there’s not many (high-quality) SGD retail bonds. And this new green bond could be a a great addition, especially for an income portfolio.

But first, let’s look at whether Frasers Property has that financial power to service their bonds.

Anyway, Who’s Frasers Property Ltd (TQ5.SI)?

Frasers Property Limited is a S$4 billion market cap, “mid-sized” Singapore property developer.

I’d argue what makes Frasers Property a “safe” developer is their diversified property assets across Singapore, Australia and Europe.

And they develop properties across different sectors — retail, commercial, industrial, hospitality and so on.

It’s still a pretty decent company.

Source: Frasers Property Limited Financial Presentation 1H2022

More importantly, what I love about Frasers Property is actually, much of its profits are recurring, which bodes well for the new green bonds.

Source: Frasers Property Limited Financial Presentation 1H2022

Even though Frasers Property is a much smaller developer than our Singapore blue-chip developers, Frasers still has a wide source of financing channels — it can monetize property assets into its REITs, raise equity from the stock market, get bank loans and access the bond market (like now).

That’s why I find Frasers Property hard to default. And this makes the new bond very attractive.

What’s more, Frasers Property has over S$1.1 billion of assets to be developed till next year. That’s going to bring in massive cash flow for this company.

Never mind whether this developer can pay dividends, or whether shares go up or down.

What you need to care as a bondholder is whether Frasers Property can pay you back the bond principal and service the interests — both of which is highly probably.

Why Would Property Developers Raise Bonds (and Not Loans)?

Bank loans are restrictive. A loan for a particular property project means you can only use the borrowed money for THAT project. It’s “restrictive”.

Bonds, on the other hand, are considered “unsecured” financing.

This means, Frasers Property can freely use the money raised from a bond and split it across different projects without any “restrictions”. The money can even be deployed overseas.

In other words, the money raised from bonds has more “flexibility”.

Why is Frasers Property Green Bonds Yield so High at 4.49%

And what’s surprising is, by right, Frasers Property bond yield should be much lower, since the company’s risks have dropped — this developer has actively reduced gearing ratio from 105% in 2020 to 70% in its latest financial quarter.

Source: Frasers Property Limited Financial Presentation 1H2022

But the thing is, Frasers Property had to increase its yield because of rising interest rates.

A rising rate environment forces companies like Frasers to step up their yield, which is good for bondholders.

I find the new Frasers Property green bonds a perfect alternative to:

  • Frasers Property stock dividend yield: 1.87%
  • Frasers Centrepoint Trust dividend yield: 5.4%
  • Frasers Logistics & Commercial Trust dividend yield: 4.76%
  • Singapore Savings 10-year Bonds (SSB): 2.75% 

If GLCs were to issue retail bonds, you’re probably not going to get anywhere near this sort of yield for a “five year maturity”.

What I’m Concerned with the New Green Bonds — Risks?

Default risks — like I’ve said earlier, I doubt it will be high.

Instead, what I’m worried is Frasers’ management screwing investors.

The last time the company tried to screw bondholders was back in 2013, by forcing a technical default on investors. I was disappointed with how the company managed their bond restructuring program. That could happen again.

And another thing is, as a bond, don’t expect ANY capital gains.

Plus, because the size of the bond issue for retail offer is small, you might find it hard to sell these bonds.

The great thing about a bond is as long you‘re willing to hold till maturity, you’re able to get back your full principal repayments — no matter bond prices going up or down.

Would I Buy the New Frasers Green Bond Today?

I find this is a retail bond worth looking at for any income portfolio.

The yield is attractive enough, and if your current portfolio yield is around 3-4%, this makes a perfect opportunity to load up some bonds.

Sometimes, investing can be simple. 

Willie Keng, CFA

Founder, Dividend Titan

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