SPH Privatisation Unexciting for Bond Holders

Timothy Ang  |   02 Aug 2021  |    408 views

SPH perpetual bondholders may lose out from the potential privatisation of SPH. This is due to SPH perpetual bonds trading above par prior to the privatisation announcement. The successful delisting will give SPH the option to redeem its bonds at par plus accrued interest. If SPH chooses not to redeem its perpetual bonds, the bond coupon rates will step up by 1%.

On 2 August 2021, Keppel Corp announced a proposed privatisation of Singapore Press Holdings. The offer is a total consideration of S$2.099 per share of SPH. It comprises i) a distribution in specie of 0.782 SPH REIT units (worth S$0.716), ii) 0.596 units of Keppel REIT units (worth S$0.715) and iii) S$0.668 in cash. The consideration represents a 11.6% premium to the closing price of S$1.88 on the last trading day on 30 July 2021.

SPH has the option to redeem or call all of its bonds upon delisting

SPH has 3 outstanding bonds: the SPHSP 3.2% 22Jan2030 Corp (SGD), SPHSP 4% Perp (SGD), and SPHSP 4.5% Perp (SGD). All the bonds have a delisting put/call clause which gives SPH the option to redeem or call the bond if the company is delisted. The redemption will be at par plus accrued interest. There are no change of control clauses for the bonds. This means bondholders do not have the put option to sell the bonds back to SPH upon delisting.

The SPH 4% and 4.5% perpetual bonds were trading at 100.45 and 101.85 respectively prior to the privatisation announcement, while the senior unsecured 3.2% bond was trading at 98.95. As such, any redemption at par would be disadvantageous to perpetual bondholders, while advantageous to senior bondholders.

Consent solicitation exercise for non-disposal covenant

SPH intends to run a formal consent solicitation exercise for bondholders of its senior unsecured SPHSP 3.2% 22Jan2030 Corp (SGD) bond. This is because the privatisation breaches a non-disposal covenant which specifies that SPH will ensure not to dispose of any of its principal subsidiaries. Successful approval of the solicitation exercise is not conditional to the success of the privatisation scheme. If the solicitation exercise is not approved, however, redemption of the senior SPH bond will still be sought by SPH possibly through the make whole clause. Details will only be announced at a later date.

SPH perpetual bonds will step up 100bps if delisting call is not exercised

The two outstanding SPH perpetual bonds will step up 1% if not called upon SPH’s delisting. In other words, the SPHSP 4.5% Perp (SGD) will pay a 5.5% coupon rate, and the SPHSP 4% Perp (SGD) will pay a 5% coupon rate if not called upon SPH’s delisting. The SPHSP 4.5% Perp (SGD) is callable in June 2024 or it will be reset at SDSW5 + 3.612%, while the SPHSP 4% Perp (SGD) is callable in May 2025 or it will be reset at SDSW5 + 3.545%.

No direct impact on SPH REIT and Keppel REIT bondholders

We do not see any direct impact of the privatisation on SPH-REIT’s SPHRSP 4.1% Perp (SGD) bond. SPH’s stake in SPH REIT will be reduced from 65.4% to 20% after the privatisation, while Keppel Corp’s stake in Keppel REIT will be reduced from 46% to 20%. There is no change of control clause in the SPHRSP 4.1% Perp (SGD).

Key dates and timeline

  • Early Sep 2021: EGM to approve media business restructuring
  • Oct 2021: EGM to approve the acquisition of SPH
  • Dec 2021: Completion of media business restructuring and acquisition of SPH

Summary

While shareholders stand to benefit from the consideration upside to the last closing share price, perpetual bondholders may lose out as the delisting put is at par while the bonds were trading above par prior to the privatisation announcement. For SPH bondholders looking to reinvest their proceeds, they may consider switching to the SPHRSP 4.1% Perp (SGD) with a yield to call of 3.74% and call date 30 August 2024, similar to SPH’s SPHSP 4.5% Perp (SGD) yield to call of 3.80% and call date 7 June 2024 before the privatisation announcement.

 

 

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