Why Are GLP Perpetual Bonds Selling Like Hot Cakes?

Global Logistics Properties (GLP), the largest integrated logistics property developer in Asia, aims to raise about $500m via the issue of perpetual capital securities to fund its operations. This comes with guidance that the notes will be priced to yield "mid- to high-5 percent", certainly a boost to investors who are seeking for a higher return in the low yield and inflationary environment.

Perpetual bonds have no maturity and issuer will continue to pay the coupons indefinitely, though they reserve the right to redeem the bonds.

Is that the only reason for the perpetual to sell like hot cakes? We suspect not. GLP has a strong business presence in its core markets of China and Japan. Their earnings are expected to grow on the back of a strong China market and gradual recovery of the Japan market. Moreover, it counts Singapore sovereign wealth fund, GIC, as its major shareholder (51%).

Currently, GLP is trading at a 20% discount to RNAV and at more attractive multiples than its logistics peers, with catalysts from higher rents, accretive capital deployment and potential asset spin-offs. The cash flows derived from a policy-friendly logistics property sector render it a more desirable investment than residential developers at this moment.

Dim Sum Bonds Gaining Popularity

China XLX Fertiliser, one of the largest and most cost efficient coal-based urea producers in China, has issued a tranche of five-year Renminbi-denominated convertible bonds at face-value. They carry an annual coupon rate of 4.5% and interests will be paid on each anniversary of the original issue date of the bonds. Conversion price of the bond is fixed at RMB1.84 per share, representing a hefty premium over today’s share price at both Hong Kong and Singapore Stock Exchange.

These Renminbi-denominated bonds are called dim sum bonds in Hong Kong, named after the favourite Chinese cuisine there. These bonds are fast gaining popularity thanks to the escalating awareness and appetite of the foreign investors, who wish to gain exposure to Renminbi-denominated assets but at the same time, are restricted by the capital control policy in China.

With the uncertainty surrounding the Eurozone and US, Renminbi has strengthened 3.6 percent versus the dollar this year, and is tipped to replace US$ as the reserve currency of the world. While this remains to be seen, the demand for dim sum bond cannot be overlooked.