Wednesday, October 14, 2015

Thoughts on Perennial Real Estate 4.65% Bond

My fellow bloggers and good friends LP and AK have both written an excellent article on their blogs explaining their thoughts on the bonds, so I am not going to repeat much of what is in the details.
 
 
Regular readers would know that I am not a big fan of bonds in general. I previously wrote regarding my thoughts on the FCL bonds so most of the thesis remains the same.
 
In general, I am in the midst of growing my base at my current age so by subscribing to the bonds it would limit the potential for my portfolio to grow anything higher than what is offered. Of course, every people are in a different stage of their journey, so I can't go on advocating investing in equities for everyone. You have to know what your situation and tolerance risk in order to gain better.
 
I just read the forums and news that the placement tranche for the bonds was oversubscribed so they could potentially raise the sum amount to allocate to the retail investors. The consensus I get from most people is retail bonds are getting increasingly popular with retail investors, with the previous Aspial and FCL bonds both oversubscribed as well. Interestingly, the same retail investors who are getting this 3 year bonds are mostly the same people who are not that acquainted with the company.
 
To be fair, the attractiveness for this bond comes from the fact that it has a short duration of 3 years maturity. They are also less sensitive to interest rate hikes which is now almost certain to go up pretty soon. Perennial Real Estate has been around for a long time and I remember how I used to be interested in their trust which has now been delisted. In other words, you probably don't have to think too much about what the companies do and what plans are they going to use the money to fund. Remember, as a bond investor, you act as a lender (not shareholder) and thus you only need to ensure that the company is still in operating mode by the time the maturity arrives after 3 years. You don't get to enjoy the growth portion an equity investor does. With most global properties now trading at an attractive valuation, it seems like it's a rather good deal for Perennial to issue the bonds at 4.65% (cost of borrowing) and use the money to gain higher returns for the projects they bid.
 
Final Thoughts
 
I leave it up to individual investors on what kind of projected returns you want for your portfolio.
 
If you are satisfied with the return, then by all means go with it and you can even throw in a couple of other corporate bonds or SSB which has been around now.
 
My personal take is that if you are young and are still working actively, I think equities is still the more attractive play over the long run. Putting the majority of your money into bonds would reduce your warchest subsequently and drag your overall portfolio returns, especially if you have proven to be an astute investors earning higher returns than what is offered.
 
The key part is to understand your situation and what bonds investing really entails. Heck, I even heard of investors trying to divest their FCL bonds in favour of this because this one was giving a higher yield premium over the former. FCL bonds have not even paid out their first coupon yet and the bond investors are already thinking of liquidating them. That to me, is simply ignorance.


66 comments:

  1. Hi B,

    I went to hwz out of curiosity to have a feel of the crowd's reaction to the bond. I read, and left with the feeling that pple thought that bonds in sg can never go into default. It's a little scary that everyone just looks at the yield without looking much at the safety of the bond.

    ReplyDelete
    Replies
    1. Hi LP

      That is the same feelings I got as well!!!

      I think we as public has not been taught to read more into risk management as opposed to focusing on yields which has been the highlight over the past couple of years.

      Delete
  2. Corporate bond seems risky to me. I learnt about it in high school, college, and recent years, and it's still not sitting well with me. I'm still a T note, or i-bond kind of girl. :P This one blogger might lose his entire bond http://www.freedomthirtyfiveblog.com/2015/10/if-bonds-go-bust-sherritt-high-yield.html



    ReplyDelete
    Replies
    1. Hi Vivianne

      Thanks for sharing.

      Corporate bonds is definitely riskier than treasury bonds and the issuer will still need to have some credibility (e.g credit terms, etc) before they can attract the public investors.

      I think in the Sherritt case, it is an obvious choice of no credit ratings and a higly cyclical component of the business which makes it very dangerous for any investors to go in and park their money there.

      Delete
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  4. I am a bit concern that whatever bonds being issued, the mass media always reports oversubscription except SSB. Have we reached a stage that all the bonds out in the market are safe and therefore grab as much as we can?

    ReplyDelete
    Replies
    1. Hi Starlight

      Exactly why we are living in an environment where yield is everything now. People don't consider the risk sufficiently.

      Delete
  5. This comment has been removed by the author.

    ReplyDelete
  6. Hi B,
    Agree with you that equities is still the more attractive play over the long run. Putting the majority of your money into bonds would reduce your warchest subsequently and drag your overall portfolio returns,

    ReplyDelete
    Replies
    1. Hi Stock Hunter

      It appears that we share the same sentiments ;)

      Delete
  7. "FCL bonds have not even paid out their first coupon yet and the bond investors are already thinking of liquidating them. That to me, is simply ignorance." - can elaborate on this point?

    ReplyDelete
    Replies
    1. Hi FS

      Sorry for the late reply.

      What I am saying there is basically for bond investors to invest in bonds but without the right mindframe of what the assets are supposed to be doing. They think that by divesting the lower yield in favour of the higher premium, it will entails them to higher returns, without considering the risk the premium entails.

      Delete
  8. "FCL....That to me, is simply ignorance." Only interested in this last sentence.

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  9. "FCL....That to me, is simply ignorance." Only interested in this last sentence.

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