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Frasers Property’s Inaugural Green Bonds Enjoy a Healthy Take-Up: Are They a Buy?

Hand Holding Small Tree
Hand Holding Small Tree

Stocks are great investment vehicles for your retirement portfolio.

However, some investors see a need to diversify their portfolios by taking on different asset classes.

Bonds are a suitable alternative to stocks.

Frasers Property Limited (SGX: TQ5), or FPL, recently launched Singapore’s first corporate green retail bonds.

This issuance is in line with the group’s goal of financing the majority of its sustainable property assets with green financing by 2024.

The notes saw an enthusiastic response – the public offer was 1.48 times subscribed while the initial placement tranche was 2.04 times subscribed.

Following strong demand, FPL upsized its offer from S$420 million to S$500 million.

With such a healthy take-up rate, are these bonds a buy?

Details of the bond

FPL is issuing five-year notes due 2027 that will carry an interest rate of 4.49% per annum.

These notes are issued under FPL’s wholly-owned subsidiary Frasers Property Treasury Pte Ltd under its S$5 billion multicurrency debt issuance programme.

The notes are issued in denominations of S$1,000 and pay interest semi-annually.

The issuance date is 16 September 2022 and the bonds started trading on the Singapore stock exchange on 19 September.

Noteholders will receive semi-annual interest payments on 16 March and 16 September, with the first payment to be made on 16 March 2023.

The redemption date for the bonds will be 16 September 2027.

Merits of owning bonds

Bonds represent a loan to the company and are a form of debt issued by them to finance their expansion and for working capital.

The merits of bonds are that they pay out a fixed coupon, thus providing a predictable passive income stream.

When held to maturity, bondholders also get back the entire principal, allowing you to preserve your capital.

The coupon rate of 4.49% is attractive when compared with other options to park your money.

Firstly, shares of FPL, the green bond issuer, also pays a dividend. As it stands, the stock’s current dividend yield of 2% is lower than the green bond coupon rate of 4.49%.

The bond yield also fares better compared to other bonds options.

For instance, last month, the Singapore government also issued a green bond worth S$2.4 billion with a 3.04% coupon.

Before that, investment firm Temasek Holdings launched its second bond offering last November with a five-year tenure offering 1.8% per annum.

The yield is also significantly higher than bank fixed deposit rates.

These rates are now hovering between 1.3% and 2.6% for a one-year tenure.

Interest will, however, only be credited at the end of one year and will be forfeited if the fixed deposit is uplifted early.

Next, the latest Singapore Savings Bond (SSB) is yielding 2.6% for its first year and 2.75% per annum over 10 years.

However, the bond yield loses out to yields offered by REITs.

The 4.49% is slightly lower than the trailing 12-month distributions yields of REITs such as Frasers Centrepoint Trust (J69U) and Frasers Logistics & Commercial Trust (SGX: BUOU), which sport yields of 5.4% and 5.6%, respectively.

The higher dividend yields do come with one downside – share price volatility.

Investors in FPL’s green bonds will not have to deal with this volatility.

More choices in the market

FPL’s green bonds are the latest in a slew of interest-bearing options in the market.

With rising interest rates globally, investors can now enjoy higher coupon rates on newly-issued bonds compared to those issued earlier.

A real estate giant with financial muscle

As we said earlier, a bond is akin to a loan to the company.

Hence, you have to be confident that the issuer has the financial means to not just service the coupons, but also to repay the principal when due.

And on this front, FPL is more than qualified.

The group reported a healthy set of earnings for its fiscal 2022’s first half ending 31 March 2022.

Revenue increased 7.5% year on year to S$1.68 billion while adjusted net profit soared more than seven-fold year on year from S$22.5 million to S$158.2 million.

As of 31 March 2022, FPL had S$3.9 billion in cash and bank deposits and S$17.1 billion in total borrowings.

To be sure, the property developer also had S$24.2 billion worth of investment properties on its balance sheet.

FPL’s cash flow remained healthy for 1H2022, generating S$359.3 million of free cash flow for the period.

Get Smart: A good way to diversify

Investors are right to feel enthusiastic over FPL’s latest bond issuance.

The coupon rate of 4.49% is attractive and the notes help to diversify their portfolios away from shares.

If you have some spare cash, you can consider parking it in these debt securities.

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Disclaimer: Royston Yang owns shares of Frasers Logistics & Industrial Trust.

The post Frasers Property’s Inaugural Green Bonds Enjoy a Healthy Take-Up: Are They a Buy? appeared first on The Smart Investor.