Singapore Airlines is reportedly preparing to issue a significant offshore yuan-denominated bond, a move that could establish a new benchmark for such offerings in the market. The five-year deal, potentially launching as early as Tuesday, is being arranged by a consortium of prominent financial institutions including Bank of China, DBS, HSBC, and Standard Chartered.
Understanding the Offshore Yuan Market
This initiative involves the carrier borrowing in the offshore yuan, also known as CNH, which is the Chinese currency traded outside of mainland China. According to mandate documentation, the issuance will fall under Singapore Airlines’ existing S$10 billion multi-currency debt program and will be marketed to investors following a global call.
Significance of a “Benchmark-Sized” Deal
Labeling the bond as “benchmark-sized” indicates a substantial offering, typically expected to be at least 1 billion yuan. Such large and liquid issues are often more attractive to a wider range of investors, potentially leading to more favorable pricing. This is because a larger pool of buyers can enter and exit positions without significantly impacting the market price.
Strategic Funding for Singapore Airlines
For Singapore Airlines, this offshore yuan issuance represents an expansion of its funding sources, complementing recent Singapore dollar debt offerings, such as the S$500 million in 10-year notes sold in January. The final decision to proceed will hinge on prevailing market conditions.
The Pricing Advantage
The strategic advantage for Singapore Airlines lies in the potential pricing math. Even if the ultimate goal is to secure Singapore dollar funding, the airline can raise capital in CNH and then utilize foreign-exchange forwards and a cross-currency swap to convert the proceeds into its desired currency. This effectively means the all-in cost of funding becomes a combination of the CNH yield curve and the “swap basis” – an additional spread incurred when swapping one currency for another.
If this combined cost proves more economical than issuing a straight Singapore dollar bond, the transaction could serve as a crucial reference point for other Singapore-based companies considering tapping into the offshore yuan market.
