Making Sense Of Singapore Post’s Latest Perpetual Securities

Two weeks ago, I was told that my relative had invested in Singapore Post’s (SGX: S08) recently issued perpetual securities.

I thought it would be helpful for my relative if I shared a factual breakdown of the numbers. I also figured that my sharing could be done on The Good Investors to benefit any reader who happens to have invested in or are interested in the same perpetual securities. Before I start, it’s important to note that some key details of the perpetual securities are complex, and I cannot guarantee that my understanding of them is correct. But I think I’m still able to give a good rundown of what’s happening. Here goes!

1) Total sum raised by Singapore Post: S$250 million, excluding any relevant fees

2) Distribution to be paid by Singapore Post for the perpetual securities: There are different distribution rates that Singapore Post will be paying, depending on the time frame:

• There are three time frames. The First Time Frame is from 6 April 2022 to 6 July 2027; the Second Time Frame is from 6 July 2027 to 6 July 2047; and the Third Time Frame refers to 6 July 2047 and beyond.
• For the First Time Frame, Singapore Post will be paying a distribution rate of 4.35% per year.
• For the Second Time Frame, there are a series of Reset Dates, with 6 July 2027 termed the First Reset Date. Each subsequent Reset Date occurs in five-year intervals from 6 July 2027. From 6 July 2027 to the Second Reset Date, Singapore Post will be paying a distribution rate of 2.183% per year, plus 0.25% per year, plus the 5-year SORA-OIS that is seen on 6 July 2027. From the Second Reset Date to the Third Reset Date, Singapore Post will be paying a distribution rate that works out to 2.183% per year, plus 0.25% per year, plus the 5-year SORA-OIS that is seen on the Second Reset Date. For subsequent Reset Dates, the same dynamic for the distribution rate applies. The acronym “SORA-OIS” stands for the Singapore Overnight Rate Average Overnight Indexed Swap. The SORA is an important interest-rate benchmark in Singapore for pricing loans and debt products in the country and the rate can be found here. The SORA-OIS is a derivative of SORA, so the term “5-year SORA-OIS” refers to the SORA-OIS with a 5-year tenor. Unfortunately, I can’t find any publicly-available pricing data for the 5-year SORA-OIS.  
• For the Third Time Frame, there are also Reset Dates that occur at the same five-year intervals. From 6 July 2047 to the next Reset Date, Singapore Post will be paying a distribution rate of 2.183% per year, plus 1.0% per year, plus the 5-year SORA-OIS that is seen on 6 July 2047. From the next Reset Date to the next-next Reset Date, Singapore Post will be paying a distribution rate of 2.183% per year, plus 1.0% per year, plus the 5-year SORA-OIS that is seen on the next Reset Date. For subsequent Reset Dates, the same dynamic for the distribution rate applies.

3) Implication of the distribution to be paid by Singapore Post: As mentioned, the distributions for the Second Time Frame and Third Time Frame involve a fixed distribution rate ranging from 2.433% (2.183% plus 0.25%) to 3.183% (2.183% plus 1.0%). Both are lower than the distribution rate for the First Time Frame. Meanwhile, the distribution rates for the Second Time Frame and Third Time Frame also have a floating-rate component that depends on the 5-year SORA-OIS – and the 5-year SORA-OIS can fluctuate with time. Because of these dynamics, the overall distribution rate for the Second Time Frame and Third Time Frame could be lower than the rate for the First Time Frame.

4) When will the distribution of the perpetual securities be paid by Singapore Post: Singapore Post will pay the distribution twice every year, on 6 January and 6 July in each year.

5) Will Singapore Post return the capital: Singapore Post can choose to redeem the perpetual securities any time within three months of 6 July 2027, or on each distribution-payment-date that comes after 6 July 2027. But Singapore Post has no obligation to redeem the perpetual securities. This means the capital an investor uses to invest in the perpetual securities will be permanently locked up inside Singapore Post if the company does not redeem them. Of course, there’s the option for the investor to sell his or her perpetual securities on the open market – but in this scenario the sale price would be determined by market conditions as well as the business-health of Singapore Post.

6) When will the perpetual securities be available for trading on the Singapore Exchange: The perpetual securities were listed for trading on 7 April 2022.

7) Can Singapore Post afford to pay the distribution attached to the perpetual securities: I can calculate with certainty that the distributions for the perpetual securities for the First Time Frame will cost Singapore Post S$10.875 million annually (4.35% of S$250 million). But it is impossible to answer definitively whether the company can afford to pay the distributions. The best an investor can do is to determine the riskiness of the perpetual securities by looking at Singapore Post’s financial condition. On this front, there are a few things to note, both positive and negative (data’s from Tikr):

• On the positive end, Singapore Post has been generating positive operating cash flow in each financial year going back to at least the last 10, and each year’s operating cash flow is comfortably higher than S$10.875 million as shown in Table 1 below.
• On another positive end (though this is only slightly positive), Singapore Post has a balance sheet with slightly more cash than debt; as of 30 September 2021, the company’s cash and debt stood at S$465.0 million and S$308.4 million, respectively.
• On the negative end, Table 1 makes it clear that Singapore Post has failed to produce any sustained growth in operating cash flow for a long time.    

8) Can Singapore Post choose to not pay the distributions attached to the perpetual securities: Yes, Singapore Post can, at its sole discretion, choose not to pay the distributions – and it can choose not to pay the distributions in perpetuity. But doing so comes at a massive cost to Singapore Post; for example, the company will not be allowed to pay any dividend to owners of its ordinary shares. But since Singapore Post can still choose to not pay the distributions on the perpetual securities, in the worst case scenario, an investor who invests in the perpetual securities could find his or her capital permanently locked up in Singapore Post, and yet receive zero income. 

9) Final word: To repeat, what I’m doing here is merely providing a factual breakdown of Singapore Post’s latest perpetual securities based on publicly available information – I’m not trying to make a case for or against an investment in them. To whoever’s reading this, I hope laying out these numbers will help you make a better-informed decision on Singapore Post’s latest perpetual securities.

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Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. I do not have a vested interest in any company mentioned. Holdings are subject to change at any time