Nam Cheong to issue SGD90m of new 5-year bonds at 5% interest rate

Rate uncertainty finally eases.

According to OSK, Nam Cheong (NCL) said it will issue SGD90m (approx. MYR225m) of new 5-year bonds at 5%, fully drawing down on its SGD200m medium term note program.

The 5% interest rate is a full 100bps lower than the 6% at which the first SGD110m tranche was priced in Oct 2012. This is a signal of bondholders’ confidence in Nam Cheong, especially in an environment of rising rates.

Here's more:

Easing interest-rate uncertainty. NCL is currently funded by MYR460m of debt, of which MYR150m is current, which we expect will be replaced by this longer-term note. This will reduce NCL’s interest-rate uncertainties with regard to refinancing its short-term borrowings.

Lower borrowing costs amid rising rates. It is interesting to note that NCL managed to lower its interest cost by 100bps at a time when the US’ 10-year yield has risen by 120bps. Clearly, the bond market is showing confidence in NCL’s improving credit and ability to repay the loan in five years.

Consensus is upgrading estimates. Just as we expected, consensus’ FY13F/14F profit estimates have been raised by 5.3%/6.8% to MYR173.3m/200.7m following NCL’s very strong 2QFY13 results.

Bond market “meets” equity analysts. We now see a meeting of minds between the bond market and equity analysts on NCL’s fundamental strength. The lower interest rate is the clearest and biggest sign of the bond market’s consensus with the street’s positive view.