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The S$100 million ($73 million) five-year programme is structured as a first-to-default basket linked to sovereign bonds from China, Thailand, Korea and Malaysia, and quasi-sovereign bonds sold by the State Bank of India. The Emerging Asia Retail Notes are issued by Societe Generale and distributed solely by Standard Chartered.
All of the names referenced in the basket are investment grade. China, Korea and Malaysia are all single-A credits, while the State Bank of India and Thailand are rated triple-B.
Investors earn a semi-annual coupon of 3.3% so long as none of the names suffers a credit event, such as bankruptcy or a failure to pay creditors. The total return after five years will be 16.5% û an attractive yield, given the credit quality of the basket and the low rate of default in Asia, that reflects the decent spreads available on Asian credits despite significant tightening in the past couple of months.
Spreads on the main iTraxx index of investment-grade names spiked to 160bp in mid-March but have since settled back to the 70bp mark, which is roughly where they started the year but still much more generous than a year ago.
"It took a bit of time for investors to digest everything that has happened but in the last few weeks we have seen requests from investors coming back in structured credit," says Francois de-Supervielle, head of structured credit at Societe Generale Corporate & Investment Banking in Hong Kong. "It's still a difficult market right now but it's starting to get better."
The notes are intended to be held to maturity and are not listed on any exchange. Investors can sell the notes back to SocGen but there is no guarantee of an active market û it will quote a bid price at the start of each month on a "best efforts" basis, which is to say that it is not obliged to buy back the notes even at its quoted bid price.
SocGen can call the bonds at 103% of the principal amount (plus the accrued coupon) every six months.
The notes are due to be issued on June 30 and have a minimum investment amount of S$5,000. Allen & Gledhill advised on legal issues relating to the notes.
The AU$85 billion ($61.6 billion) Australian super fund has some exposure to indebted property developer Evergrande. Meanwhile, China’s construction finance is part of its core strategy in real estate.
Investors are seeing the risks, but also the opportunities of the logistics sector. Warehousing their fears for the moment, they can see it's a good conduit to high-growth assets.
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SGX’s new framework for Spacs will likely provide investors with a much-needed channel for direct deals, but the verdict is still out on whether it will bring liquidity to the bourse.