Tuesday, October 13, 2015

Perennial Real Estate 4.65% bond - Good buy or Goodbye?

Perennial Real Estate Holdings is launching their first retail bond. It's a 3 year bond paying 4.65% pa, payable semi-annually and with a min amount of $2k. Is it good buy or good bye?




Beautiful name, this perennial word. Perennial means lasting or existing for a long or apparently infinite time; enduring or continually recurring. Unfortunately, the word perennial for this company refers to the hope that it'll last forever and not a fact of its actual existence. How so?


I went to SGX website to take a look at the issuing company's financial statements, and realised that there's only 2 yrs worth of it. It's essentially one year if you exclude FY2014, because the figures between the FY2014 and FY2015 doesn't make sense. From their circulars, I read that last year in 2014, they went through sooo many corporate changes that I was not even sure I'm reading it correctly. Perennial Real Estate Holdings originally came from St. James Holdings Limited, and they are going to dispose all their existing business to Citybar Holding Pte Ltd, consolidate their shares to the tune of every 50 to 1, offer of Perennial China Retail Trust by exchanging their shares (don't ask me the details), transfer their catalist listing to main board and many other proposals, and thereafter change their name to the present Perennial Real Estate Holdings Limited.

Yeah, this St. James powerstation

It is this Perennial Real estate holdings that is issuing the 3 yr bond of 4.65% pa. So this company is one of the many shape shifter company that changed name and business until nobody really knows who they came from and where. As such, they really only have 1 year of financial statements to look at. Nothing really to see, so this is going to be short.


A few key points:

1. Their total assets consists mainly of China (70%) and Singapore (27%). Their Singapore assets consists of CHIJMES, TripleOne Sommerset, Capitol Singapore, House of Tan Yeck Nee, AXA Tower, Chinatown point and 112 Katong. I don't know how well their business is in China, but I don't really like their properties in Singapore. They are really no where near the quality of Capitaland and Frasers.

2. How well a bond does depends on how well the issuer company do, especially over the duration of the bond. I have no idea how they are doing, given the short history of their 'new' company and hence have no idea how well the bond will be doing. I don't even know how well their management is going to be like.

3. Sponsors come from Mr Kuok (CEO of Wilmar), Mr Ron Sim (CEO of OSIM), Wilmar International Ltd and Mr Pua (CEO of this group). Not exactly comforting or reassuring to me.


That's it.


The good thing about this bond is that it has a short duration, hence it won't be so affected by the impending interest rate hike. Anyway, if the company lasts that long and you hold the bond for the full duration, it'll be capital guaranteed. The recent Aspial, 5.25% pa, 5 yr bond is trading at $1.017 now, up from $1.000 par value and I'm quite sure this will be something like that too. Frankly, looking for a high yield bond coupled with the inherent risk that comes with it by sacrificing safety seems silly to me. Don't forget, there's always the 'risk-free' SSB with possibly 3% pa (it's now 2.78% pa on average) if you hold for 10 yrs. So is it a good buy or good bye for me?


It's a good bye for me. Thanks but no thanks.



16 comments :

Frugal Daddy said...

Hi LP

Thanks for the review. Saved my effort to find out more.

Interest rate may rise and upcoming bonds may be more attractive. Cheers.

AK71 said...

Hi mew ge,

For accurate comparison, we might want to compare the coupon to what the SSB would yield after a holding period of 3 years and not 10 years. ;)

la papillion said...

Hi FD,

It's not really a review. There's nothing to review, given the short history of the new company. Even the FY2015 is less than 1 yr. So nothing to see lol

la papillion said...

Hi AK,

Wow, rare guest :) Agree with your comments. If you are to hold ssb for 3 yrs, you'll get on average 1.48% pa per year. SSB is guaranteed by the govt but this perennial bond isn't, so investors (or lenders) will have to decide if the extra yield is worth the risk.

Anonymous said...

This is a shadow review. It seems that you didn't quite follow history of Perrenials (China Reits). You should really go and read up on the history of CEO Mr Pua, where he has been working in years before. The fact that it the bond command 4+% lower than Aspials 5+%, ie the bond market is giving it a better credit rating than Aspials.

la papillion said...

Agree with you. That's because there isn't anything to see for this company. I prefer to see the track record of the company that he is running now than to based it on this past triumphs. It's also not fair to compare aspial to real estate. As a lender, I'm more assured if the underlying asset is property too. If u compare capital land and fcl, which are also doing real estate, their 3 to 3.65% also suggest that perennial isn't that safe too. You can certainly disagree with me :) are u going to get some?

Anonymous said...

Haha, agree with you that comparing with with capital land and FCL, Perennials definitely isn't really up there. Hence Perennials' has to pay 4.65% vs 3-3.65. (friendly exchange). But definitely, to me the CEO has a very good track record from the way he expanded Perennials over the years. He didn't list his SG portfolio until the right time for him to do a RTO with st james. Also, For me, this is more attractive than the aspial one as it is 3 yrs vs 5yrs . However, 4.65% still not attractive enough as I buy bond for income and usu hold till maturity. If they pay closer to 5%, I will be keen due to the huge amt involved as I buy directly from bond market/Fixed income desk or Bond IPO.

la papillion said...

Regarding the old perennial, some people hate it some people like it. Oh well, that's stock market for you - nobody can come to a consensus, haha! I do agree that 3 yrs is better than 5 years, as the impending hike in interest rate should affect those longer term bonds. I'm also holding bonds till maturity but it's just a small % of my portfolio to stabilise it. If there's a 5% bond with good quality, you can be sure I'll be buying it too. Thanks for weighing on this issue! Your comments are much valued!

SMK said...

Personally, just like the past few years is NOT THE BEST period to be putting LUMP SUMs in equities, this period of time is not the best period to be putting lump sums in bonds. I suspect yields in the upcoming few years will be higher.

Anonymous said...

Haha, truth be told, Pua Seck Guan is quite a legend within the property industry.

K said...

Hi LP,

Given that the price is $1.012 from the market, what is the returns I will get assuming I buy and hold it for 3 years? Including the buy and sell commissions.

I am a newbie and would be grateful if you can assist me. Thanks.

la papillion said...

Hi K,

They haven't given out any dividends yet and it's so near to their 'ipo' date, so the returns will be about 4.65% pa every year for 3 yrs, excluding comms. If you include comms, it'll be slightly lower.

Mahesh said...

The Aliens Group is a leading real estate and property development firm that has pioneered the 'Intelligent Living' concept in India and redefined the conventional construction industry through its path-breaking projects. Real Estate in Hyderabad Telangana India

Rolf Suey said...

Hi LP,

Thanks for the review.
I was reading the papers today and saw this bond issue.

I am sure there will be more bond issuances upcoming.
Bond for portfolio balancing is impt but I do agree that it can be better to go agst the odds in equity now or later and bond few yrs back.

FCL and CPL definitely better bonds. No doubt!
But with Kuok and Ron Sim backing, 3 yrs can be a bet that co will not go bust!

By the way, I have a question. is buying into FCL bond now still makes sense?

la papillion said...

Hi Rolf,

No problem!

I think this new bond by perennial will be hot too, haha! Is buying into FCL now still makes sense? I think yes. I bought quite a lot for my parents retirement funds and have full intention to hold till maturity. 3.65% is not a bad deal, I feel. You can take a look at the details here: http://bullythebear.blogspot.sg/2015/05/fraser-centrepoint-limited-365-pa-bond.html#.Vxjbe_l96Ul

The last close is 1.006, so it's still very near par. I bought another whole bulk when it's below par at around 0.985.

Take note that there is an option for early redemption, with the earliest being 22nd May 2019, and on each interest payment date thereafter.

Rolf Suey said...

Hi LP,

Thanks, Xie xie, Gam siah! very informative!