Friday, 19 October 2018

Temasek T2023-S$ Bond

Temasek had recently launched a bond available for retail investor 2 days ago. The latest bond released by Temasek was the first ever that is opened for public to participate in. 

Here are the details below for an overview:

Interest Payment Date: 25 April / 25 October yearly.

For an easier explanation, I believe Temasek has done a nice job to include a short introduction and explanatory about the bond they're issuing to provide a the public with a general idea of the bond.

You may wish to take a look at the video below for more information

Investors must be reminded that the instrument they are looking at, today at is a bond. A bond is a fixed income instrument and by investing in bonds, we are essentially borrowing our monies out to the issuer, and in this case, Temasek Holdings. 

When we become money lender, we are paid coupons. In this case 2.7% annually, which will be paid twice across a year until maturity. Upon maturity, the principal amount will then be returned to the money lenders.

As bonds are a fixed income instrument, the interest rate for the bond is fixed throughout the 5 year. 

Meaning to say, should the interest rate in the economy rises more than what the bond could offer, your bond is essentially worth lesser as the same amount of money invested for this 2.7% can be invested for 4% interest. 

Making the other deal more attractive and to price it along, the unit price of your bond will fall. However, when the opposite happens, your bond will be worth much more. 

So yes, the general idea of bonds is there.

Taking yourself as a money lender today, the risk involving money lending will include the risk of your lender not repaying you. In this sense, we refer to the term as defaulting on payment. Hence, it is very important for the issuer to have credibility. 

Taking a look, Temasek Holdings hold a credit rating of AAA, rated by S&P and Moody. AAA represents the highest level of credit rating which has an exceptional degree of creditworthiness, perceived to have the smallest risk of default.  

As investors, we are most commonly paid for the risk we undertake in each investments. The higher return will command a greater level of risk involves and vice versa. For what we see today from Temasek, the risk of defaulting is minimal and having that said, we must expect a conservative return instead of crazy ones.

Comparing it to the SSB, we must also understand that there are differences between both product and this is the reason why we are paid slightly more in interest.

SSB despite being kept in our CDP accounts, they are not traded in the market whereas the T2023-S$ will be traded in the SGX market. Having that said, we will also be able to buy into the bonds from the open market after 26 October 2018. 

When traded on an open market, there will be a certain level of rationality by Mr Market and prices of the bond could be driven either ways by investors that buy and sell on the market. With that in mind, if we were to liquidate the bond somewhere in between the 1st-5th year and the price is down south, we will see ourselves selling them at a loss.

As this is a fixed income instrument, should the price of this bond fall below it's listed price of S$1, we will be looking at a higher interest received when we buy from the market afterwards. 

The bond application will close on 23/10/2018 12:00PM and will start trading on 26/10/2018 09:00AM on SGX market.

Successful applicant will be notified on 25/10/2018 and refunds of unsuccessful allocation will be paid of 24/10/2018 along with the announcements.

CPFIA-OA can also be utilized to participate in the bond issue of up to 35% and application of bonds can be done through iBanking, ATMS and Mobile banking app of POSB/DBS, OCBC and UOB.

As compared to some other products available, we must be reminded that this is a safer investment and will not be suitable for those who crave a greater returns. 

As it is traded in the open market and subjected to more risks, the T2023-S$ is also not a suitable place for us to park our emergency funds as our e-funds should not be subjected to losses when we liquidate it due to emergency. When we invest in T2023-S$ bond, it's best for us to hold through the 5 years period.

The T2023-S$ Temasek Bond should be regarded as a safer investment as opposed to the SSB, which we can view it more to a fixed deposit.

As usual, I believe it's very important for us as an investor, to know ourselves. Which equipment we use will depend on what objective we need and the purpose for doing so.

- Temasek Bond T2023-$ (Product Highlights)
- Temasek Bond T2023-$ (Offering Circular)
- Temasek Bond T2023-$ (Pricing Supplement)

More details can also be found on Temasek's official website on T2023-S$ Bond

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