SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Equity Bottom-Up

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 <div class='content-caption'>Prime US REIT CEO</div>
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For property veteran Barbara Cambon, buildings are not just a heap of bricks and concrete. Instead, they are dynamic structures where people learn, work, play and dream. 
"Real estate is viewed as solid structures, but we must also understand the dynamism and diversity that goes on within these physical assets, and how they can meet the constantly evolving needs of their occupants," said the Chief Executive Officer of the Manager of SGX-listed Prime US REIT (PRIME). 
Cambon, who began her real estate career in the early 1980s, is no stranger to forces of transformation within the industry. 
"The way that tenants use our buildings will continue to change, as will the type and nature of the tenants who want to use our buildings," she added. 
The 65-year-old, who is also Chief Investment Officer of the Manager, has accumulated experience in institutional real estate advisory, including roles with a US-based private real estate investment firm and real estate consulting company. 
A Master of Business Administration graduate from Southern Methodist University, Cambon also holds a Bachelor of Science degree in Education from the University of Delaware. 
She sits on the Policy Advisory Board of the University of San Diego Burnham-Moores Real Estate Institute. Previous board positions include the Pension Real Estate Association, National Council of Real Estate Investment Fiduciaries and Amstar Advisers. 
"Helping clients identify how real estate fits their needs, how they should build their investment platforms, as well as develop the fundamentals of their asset selection strategies - all of that has shaped my experience," she said. 
Today, those skillsets stand Cambon in good stead to drive expansion at PRIME. 
Listed on 19 July 2019 on SGX Mainboard, PRIME is focused on stabilised, income-producing US office assets. It owns a high-quality, geographically diversified portfolio of 11 prime and freehold office properties, strategically located in nine primary markets in the US, with a total appraised value of approximately US$1.25 billion. 
The portfolio is well-diversified - no primary market contributes more than 14.6%, and no single trade sector accounts for more than 16.6%, of total portfolio value. Portfolio occupancy rates remain high at over 95%, with a long average weighted average lease expiry (WALE) of 5.1 years as at 31 December 2019. 
The REIT has an average debt to maturity of 5.2 years at a weighted average interest rate of 3.3%. Its gearing ratio remains healthy, at 33.7%. 
PRIME has gained about 9.1% since listing at an initial public offer (IPO) price of 88 US cents. For its fourth quarter ended 31 December 2019, the REIT posted a distribution per unit (DPU) of 1.77 US cents, 9.3% higher than its IPO forecast of 1.62 US cents.

Stable Resilience 
"We're focused on the markets where corporate America wants to grow," Cambon said. "Employees of today are looking for live-work environments with shorter commutes, and those that include a balanced work-play dynamic." 
PRIME is focused on identifying US markets with signs of robust jobs expansion, and large numbers of highly educated employees. Other criteria include areas with higher than national average population growth rates, as well a relatively lower cost of living to attract in-migration of talent. 
Corporations are no longer just focusing on major gateway cities. This can be seen from how Salt Lake City has grown in importance for Goldman Sachs, or how Amazon nixed New York in favour of Northern Virginia for its HQ2, she noted. 
"Key factors that matter today include a lower cost of living, a balanced live-work-play environment, as well as proximity to major universities with access to a talented workforce." 
Last month, PRIME acquired the Park Tower office building, situated in the prime central business district (CBD) of Sacramento, California, for US$165.5 million. The property is a freehold, 24-storey Class A office tower with a five-storey, mixed-use retail or parking garage, comprising a net lettable area of 489,171 square feet. 
"Sacramento is a new market that diversifies our geographical exposure, and introduces a new industry sector - Government - that adds stability to the portfolio," Cambon pointed out. 
"The real estate market in California's capital is also robust, with low vacancy rates, healthy rent growth, high demand and limited new supply." 
PRIME's maiden acquisition is yield-accretive, boosting its portfolio value to approximately US$1.42 billion. On a pro forma basis, it provides an uplift of 2.7% and 0.1% to DPU and net asset value (NAV) respectively. 
To further grow these two closely watched industry metrics, the REIT will focus on both organic and inorganic strategies. "For our portfolio, 98% of the leases have built-in rental escalations that range from 1% to 3%," Cambon said. 
Active asset management is another route. "The construction of our portfolio is focused on resilience and stability - we want to ensure we don't have the bulk of our leases maturing in the space of any one year, and there is diversity in terms of tenant-industry mix," she added. 
"We also want to manage the space dynamics within each asset - for tenants looking to grow within the building, we want to accommodate their needs, and at the same time, help other tenants whose needs may be best-served by moving elsewhere." 
All of these require a thorough understanding of the office real estate space, and application of the right criteria to asset selection, she added. 
As for growth via acquisitions, PRIME is targeting yield-accretive assets in strategic markets where US corporations are expanding their operations. 
"We're able to leverage on the organisational resources of our sponsor, KBS Asia Partners, whose shareholders include the founding members of KBS," Cambon said. 
KBS is one of the largest US commercial real estate managers with more than US$41.8 billion of transactional volumes since its inception in 1992. "Having that depth of experience in these markets and being well-known in the community, they can identify and open up suitable opportunities for us." 
Apart from its sponsor's support, PRIME also has flexibility to focus on assets owned by third parties, as in the case of the Sacramento Park Tower acquisition, she added.

Space Optimisation 
With the spread of the COVID-19 coronavirus, PRIME is closely monitoring the pandemic's impact on the US economy. Several major cities, including New York, have ordered schools, bars and restaurants to shut, while some retailers have closed stores, as authorities urged social distancing in a bid to stem the outbreak. 
The office market, on the other hand, has been resilient. "There's a limited supply of Class A offices, with the key office-using sectors of Financial Services, Professional Services and Information increasing jobs by 150,000 in the fourth quarter of last year," Cambon noted. 
"With a similar amount of new supply added, vacancy rates remained stable in view of the tight labour market." 
Segments that enjoy long-term leases may see less of an impact from the pandemic, the Washington, DC-based National Association of Real Estate Investment Trusts (Nareit) said in a recent blog post. 
"An apartment REIT with low vacancy rates will still have their tenants paying rent, and may not suffer any lost income. Similarly, an office REIT with investment grade tenants is not likely to experience a drop in occupancy or rent receipts," it added. 
Meanwhile, the tenant-industry mix in PRIME's portfolio is evolving. "In the past, Financial Services tenants made up the majority of our tenants. But in the past year, Technology has seen the biggest take-up rates for office space among all sectors, and is expected to continue its outperformance through 2020," Cambon said. 
This benefits PRIME, which has a more than 37% exposure to the rapidly expanding STEM (Science, Technology, Engineering and Mathematics) and TAMI (Technology, Advertising, Media and Information) segments. 
Nonetheless, one of the biggest challenges PRIME faces comes from identifying and meeting continually changing needs of tenants within its portfolio. 
"We need to understand how space use is changing, and provide our tenants with the most contemporary amenities to keep our buildings modern and fresh." 
Examples include conferencing facilities for remote workers, as well as strategically located fitness centres, bicycle parking and storage lockers for those with more active lifestyles. 
"There's also increasing demand for collaborative spaces, such as tenant lounges, where staff can relax, hang out or work with their laptops near their offices," she added. 
And when Cambon is not immersed in the day-to-day operations of the REIT, she enjoys interacting with the young - and hopefully - future leaders of the real estate industry. 
"One of the cool things I get to do is to teach a class," she smiled, referring to her role on policy advisory boards of US educational institutions. 
To the young, she has this advice to offer: Stay current as the world continues to evolve, and the industry along with it. 
"The next generation will have access to more resources, such as technology and knowledge, compared to the previous generation," she said. "So the onus is on you to pull together all these experiences, and harness available resources, to become the best operator you can be of any asset." 
Education should also be a priority, she added. "Learning never stops, whether at an individual or industry level. So make sure you are constantly learning, and learning something new every day."

Prime US REIT

Listed on 19 July 2019 on SGX Mainboard, Prime US REIT (PRIME) is a diversified Singapore REIT with a focus on stabilised income-producing office assets in the US. PRIME offers investors a unique exposure to a high-quality portfolio of 11 prime and freehold office properties, strategically located in nine primary markets in the US, with a total appraised value of US$1.25 billion. KBS Asia Partners Pte Ltd (KAP) is the sponsor of PRIME. KAP's shareholders include founding members of KBS, which is one of the largest US commercial real estate managers with US$11.6 billion of assets under management as at 31 December 2019, and more than US$41.8 billion of transactional volume since inception in 1992.

The company website is: <a href="http://edm.sgx.com/a/hBefV4jB86%24MfB91genAAAAAAmP/link7">primeusreit.com</a>. 
Click <a href="http://edm.sgx.com/a/hBefV4jB86%24MfB91genAAAAAAmP/link8">here</a> for the company's StockFacts page. 
For fourth quarter ended 31 Dec 2019 financial results, click <a href="http://edm.sgx.com/a/hBefV4jB86%24MfB91genAAAAAAmP/link9">here</a>.
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    Prime US REIT CEO


For property veteran Barbara Cambon, buildings are not just a heap of bricks and concrete. Instead, they are dynamic structures where people learn, work, play and dream.  
"Real estate is viewed as solid structures, but we must also understand the dynamism and diversity that goes on within these physical assets, and how they can meet the constantly evolving needs of their occupants," said the Chief Executive Officer of the Manager of SGX-listed Prime US REIT (PRIME).  
Cambon, who began her real estate career in the early 1980s, is no stranger to forces of transformation within the industry.  
"The way that tenants use our buildings will continue to change, as will the type and nature of the tenants who want to use our buildings," she added.  
The 65-year-old, who is also Chief Investment Officer of the Manager, has accumulated experience in institutional real estate advisory, including roles with a US-based private real estate investment firm and real estate consulting company.  
A Master of Business Administration graduate from Southern Methodist University, Cambon also holds a Bachelor of Science degree in Education from the University of Delaware.  
She sits on the Policy Advisory Board of the University of San Diego Burnham-Moores Real Estate Institute. Previous board positions include the Pension Real Estate Association, National Council of Real Estate Investment Fiduciaries and Amstar Advisers.  
"Helping clients identify how real estate fits their needs, how they should build their investment platforms, as well as develop the fundamentals of their asset selection strategies - all of that has shaped my experience," she said.  
Today, those skillsets stand Cambon in good stead to drive expansion at PRIME.  
Listed on 19 July 2019 on SGX Mainboard, PRIME is focused on stabilised, income-producing US office assets. It owns a high-quality, geographically diversified portfolio of 11 prime and freehold office properties, strategically located in nine primary markets in the US, with a total appraised value of approximately US$1.25 billion.  
The portfolio is well-diversified - no primary market contributes more than 14.6%, and no single trade sector accounts for more than 16.6%, of total portfolio value. Portfolio occupancy rates remain high at over 95%, with a long average weighted average lease expiry (WALE) of 5.1 years as at 31 December 2019.  
The REIT has an average debt to maturity of 5.2 years at a weighted average interest rate of 3.3%. Its gearing ratio remains healthy, at 33.7%.  
PRIME has gained about 9.1% since listing at an initial public offer (IPO) price of 88 US cents. For its fourth quarter ended 31 December 2019, the REIT posted a distribution per unit (DPU) of 1.77 US cents, 9.3% higher than its IPO forecast of 1.62 US cents.

Stable Resilience  
"We're focused on the markets where corporate America wants to grow," Cambon said. "Employees of today are looking for live-work environments with shorter commutes, and those that include a balanced work-play dynamic."  
PRIME is focused on identifying US markets with signs of robust jobs expansion, and large numbers of highly educated employees. Other criteria include areas with higher than national average population growth rates, as well a relatively lower cost of living to attract in-migration of talent.  
Corporations are no longer just focusing on major gateway cities. This can be seen from how Salt Lake City has grown in importance for Goldman Sachs, or how Amazon nixed New York in favour of Northern Virginia for its HQ2, she noted.  
"Key factors that matter today include a lower cost of living, a balanced live-work-play environment, as well as proximity to major universities with access to a talented workforce."  
Last month, PRIME acquired the Park Tower office building, situated in the prime central business district (CBD) of Sacramento, California, for US$165.5 million. The property is a freehold, 24-storey Class A office tower with a five-storey, mixed-use retail or parking garage, comprising a net lettable area of 489,171 square feet.  
"Sacramento is a new market that diversifies our geographical exposure, and introduces a new industry sector - Government - that adds stability to the portfolio," Cambon pointed out.  
"The real estate market in California's capital is also robust, with low vacancy rates, healthy rent growth, high demand and limited new supply."  
PRIME's maiden acquisition is yield-accretive, boosting its portfolio value to approximately US$1.42 billion. On a pro forma basis, it provides an uplift of 2.7% and 0.1% to DPU and net asset value (NAV) respectively.  
To further grow these two closely watched industry metrics, the REIT will focus on both organic and inorganic strategies. "For our portfolio, 98% of the leases have built-in rental escalations that range from 1% to 3%," Cambon said.  
Active asset management is another route. "The construction of our portfolio is focused on resilience and stability - we want to ensure we don't have the bulk of our leases maturing in the space of any one year, and there is diversity in terms of tenant-industry mix," she added.  
"We also want to manage the space dynamics within each asset - for tenants looking to grow within the building, we want to accommodate their needs, and at the same time, help other tenants whose needs may be best-served by moving elsewhere."  
All of these require a thorough understanding of the office real estate space, and application of the right criteria to asset selection, she added.  
As for growth via acquisitions, PRIME is targeting yield-accretive assets in strategic markets where US corporations are expanding their operations.  
"We're able to leverage on the organisational resources of our sponsor, KBS Asia Partners, whose shareholders include the founding members of KBS," Cambon said.  
KBS is one of the largest US commercial real estate managers with more than US$41.8 billion of transactional volumes since its inception in 1992. "Having that depth of experience in these markets and being well-known in the community, they can identify and open up suitable opportunities for us."  
Apart from its sponsor's support, PRIME also has flexibility to focus on assets owned by third parties, as in the case of the Sacramento Park Tower acquisition, she added.

Space Optimisation  
With the spread of the COVID-19 coronavirus, PRIME is closely monitoring the pandemic's impact on the US economy. Several major cities, including New York, have ordered schools, bars and restaurants to shut, while some retailers have closed stores, as authorities urged social distancing in a bid to stem the outbreak.  
The office market, on the other hand, has been resilient. "There's a limited supply of Class A offices, with the key office-using sectors of Financial Services, Professional Services and Information increasing jobs by 150,000 in the fourth quarter of last year," Cambon noted.  
"With a similar amount of new supply added, vacancy rates remained stable in view of the tight labour market."  
Segments that enjoy long-term leases may see less of an impact from the pandemic, the Washington, DC-based National Association of Real Estate Investment Trusts (Nareit) said in a recent blog post.  
"An apartment REIT with low vacancy rates will still have their tenants paying rent, and may not suffer any lost income. Similarly, an office REIT with investment grade tenants is not likely to experience a drop in occupancy or rent receipts," it added.  
Meanwhile, the tenant-industry mix in PRIME's portfolio is evolving. "In the past, Financial Services tenants made up the majority of our tenants. But in the past year, Technology has seen the biggest take-up rates for office space among all sectors, and is expected to continue its outperformance through 2020," Cambon said.  
This benefits PRIME, which has a more than 37% exposure to the rapidly expanding STEM (Science, Technology, Engineering and Mathematics) and TAMI (Technology, Advertising, Media and Information) segments.  
Nonetheless, one of the biggest challenges PRIME faces comes from identifying and meeting continually changing needs of tenants within its portfolio.  
"We need to understand how space use is changing, and provide our tenants with the most contemporary amenities to keep our buildings modern and fresh."  
Examples include conferencing facilities for remote workers, as well as strategically located fitness centres, bicycle parking and storage lockers for those with more active lifestyles.  
"There's also increasing demand for collaborative spaces, such as tenant lounges, where staff can relax, hang out or work with their laptops near their offices," she added.  
And when Cambon is not immersed in the day-to-day operations of the REIT, she enjoys interacting with the young - and hopefully - future leaders of the real estate industry.  
"One of the cool things I get to do is to teach a class," she smiled, referring to her role on policy advisory boards of US educational institutions.  
To the young, she has this advice to offer: Stay current as the world continues to evolve, and the industry along with it.  
"The next generation will have access to more resources, such as technology and knowledge, compared to the previous generation," she said. "So the onus is on you to pull together all these experiences, and harness available resources, to become the best operator you can be of any asset."  
Education should also be a priority, she added. "Learning never stops, whether at an individual or industry level. So make sure you are constantly learning, and learning something new every day."

Prime US REIT

Listed on 19 July 2019 on SGX Mainboard, Prime US REIT (PRIME) is a diversified Singapore REIT with a focus on stabilised income-producing office assets in the US. PRIME offers investors a unique exposure to a high-quality portfolio of 11 prime and freehold office properties, strategically located in nine primary markets in the US, with a total appraised value of US$1.25 billion. KBS Asia Partners Pte Ltd (KAP) is the sponsor of PRIME. KAP's shareholders include founding members of KBS, which is one of the largest US commercial real estate managers with US$11.6 billion of assets under management as at 31 December 2019, and more than US$41.8 billion of transactional volume since inception in 1992.

The company website is: primeusreit.com.  
Click here for the company's StockFacts page.  
For fourth quarter ended 31 Dec 2019 financial results, click here.



Prime US REIT: Harnessing the Live-Work-Play Dynamic

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Thematic (Sector/Industry)

<ul>
<li class="MsoListParagraphCxSpFirst">
Darkest Hour Ahead: The US is entering its darkest hour with the dumb college kids at spring break being the tipping point for community spread and national guard call-up.</li>
<li class="MsoListParagraphCxSpMiddle"> Financial and Sovereign Crises Underway: The safest credit markets are not properly functioning, and the symbiotic relationship between European financials and the sovereigns which is pressuring sovereign CDS spreads. With Eurozone firewalls already breached, the two Trojan horses of counterparty risk and a challenged corporate bond market (ratings agency risk and waterfall risks due to cascading BBB and B3 corporates) embedded within the “well-capitalized” US banking system are now causing systemic wobbles. </li>
<li class="MsoListParagraphCxSpMiddle"> Equity Unravel Set to Continue: QE6 is not going to stop the equity market bleeding. Quant Funds are every bit as vulnerable as active management in times of stress. Risk Parity Funds have declined in size from USD 600 bn in February 2020 to USD 250 bn as at March 18, 2020. US brokers/investment banks for aggressively lending on margin to high net worth (HNW)/retail investors. Margin to the average retail client is up to 50% of the market value of their securities and are quite willing to lend up to 70% of the market value of a client's investment portfolio for the purchase of real estate - owner-occupied or on speculation.</li>
<li class="MsoListParagraphCxSpLast">
QE7 Is Not Far Behind:Beyond bailing out Boeing (BA.US) which is a national security priority, there will clearly be an all-time record handout coming with TARP 2. In addition, the FRB expects to announce the establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses, complementing efforts by the SBA. </li>
</ul>



Darkest Hour Ahead: The US is entering its darkest hour with the dumb college kids at spring break being the tipping point for community spread and national guard call-up.
 Financial and Sovereign Crises Underway: The safest credit markets are not properly functioning, and the symbiotic relationship between European financials and the sovereigns which is pressuring sovereign CDS spreads. With Eurozone firewalls already breached, the two Trojan horses of counterparty risk and a challenged corporate bond market (ratings agency risk and waterfall risks due to cascading BBB and B3 corporates) embedded within the “well-capitalized” US banking system are now causing systemic wobbles. 
 Equity Unravel Set to Continue: QE6 is not going to stop the equity market bleeding. Quant Funds are every bit as vulnerable as active management in times of stress. Risk Parity Funds have declined in size from USD 600 bn in February 2020 to USD 250 bn as at March 18, 2020. US brokers/investment banks for aggressively lending on margin to high net worth (HNW)/retail investors. Margin to the average retail client is up to 50% of the market value of their securities and are quite willing to lend up to 70% of the market value of a client's investment portfolio for the purchase of real estate - owner-occupied or on speculation.

QE7 Is Not Far Behind:Beyond bailing out Boeing (BA.US) which is a national security priority, there will clearly be an all-time record handout coming with TARP 2. In addition, the FRB expects to announce the establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses, complementing efforts by the SBA. 


<ul>
<li> Dusting Off the Old Playbook: The globe is finally coming to the realization that corona virus containment means that global economic activity will grind to a halt over the next 2-3 months. The market is going to aggressively retest the firewalls put in place during the GFC.  As a result, the GFC and sovereign crisis playbook is now being dusted off - including the Troubled Asset Recovery Program (TARP) in the US and the European Stability Mechanism (ESM) credit lines.  
</li>
<li> Not The Europeans....Again:Given the symbiotic relationship between European financials and sovereigns, the most recent market collapse has already pressured sovereign CDS spreads. The ebbing economic tide has significantly exposed the European financial system for what it always was - a low profit, weak capital generating, and highly geared sector which has been dangerously close to loss making for over a decade. The European Central Bank’s (ECB) faltering asset purchase program is unable to keep CDS spreads from significantly widening and having a knock-on effect with the rest of the world. </li>
<li>
Americans Getting Stressed Over Counterparty Risk Et al.  With Eurozone firewalls already breached, the two Trojan horses of counterparty risk and a challenged corporate bond market (ratings agency risk and waterfall risks due to cascading BBB and B3 corporates) embedded within the “well-capitalized” yet vulnerable US banking system will cause additional systemic wobbles. </li>
</ul>


 Dusting Off the Old Playbook: The globe is finally coming to the realization that corona virus containment means that global economic activity will grind to a halt over the next 2-3 months. The market is going to aggressively retest the firewalls put in place during the GFC.  As a result, the GFC and sovereign crisis playbook is now being dusted off - including the Troubled Asset Recovery Program (TARP) in the US and the European Stability Mechanism (ESM) credit lines.  

 Not The Europeans....Again:Given the symbiotic relationship between European financials and sovereigns, the most recent market collapse has already pressured sovereign CDS spreads. The ebbing economic tide has significantly exposed the European financial system for what it always was - a low profit, weak capital generating, and highly geared sector which has been dangerously close to loss making for over a decade. The European Central Bank’s (ECB) faltering asset purchase program is unable to keep CDS spreads from significantly widening and having a knock-on effect with the rest of the world. 

Americans Getting Stressed Over Counterparty Risk Et al.  With Eurozone firewalls already breached, the two Trojan horses of counterparty risk and a challenged corporate bond market (ratings agency risk and waterfall risks due to cascading BBB and B3 corporates) embedded within the “well-capitalized” yet vulnerable US banking system will cause additional systemic wobbles. 


Deja Wu – Corona Virus Now Infects Global Financials

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

In the global debt capital markets, Additional Tier 1 (AT1) bonds continued to price at levels attractive for their issuers. In addition to attractive pricing, these bonds have been issued in bulk with all, but one, recent issue at over $700 million in size. Furthermore, in addition to pricing and size, several of these bonds have come from issuers once thought un-investable. As such, <a href="https://www.smartkarma.com/entities/piraeus-bank-sa" target="_blank" rel="noopener" data-smartkarma-citation="entities:22603:1">Piraeus Bank SA (TPEIR GA)</a> reconfirmed that the market may be drowning in liquidity. In other segments of the credit spectrum, we are not completely sure that investors clearly understand what they are purchasing. Incredibly robust investor demand remains the theme.  In Asia’s primary market, offshore bank debt issuance remained tepid although <a href="https://www.smartkarma.com/entities/muthoot-finance-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:15425:1">Muthoot Finance (MUTH IN)</a> and India Infoline managed to issue bonds at the opposite end of the credit continuum from DBS. Within this report, we highlight recent bank debt capital issuance that may have implications for Asian bank debt.

In the global debt capital markets, Additional Tier 1 (AT1) bonds continued to price at levels attractive for their issuers. In addition to attractive pricing, these bonds have been issued in bulk with all, but one, recent issue at over $700 million in size. Furthermore, in addition to pricing and size, several of these bonds have come from issuers once thought un-investable. As such, Piraeus Bank SA (TPEIR GA) reconfirmed that the market may be drowning in liquidity. In other segments of the credit spectrum, we are not completely sure that investors clearly understand what they are purchasing. Incredibly robust investor demand remains the theme.  In Asia’s primary market, offshore bank debt issuance remained tepid although Muthoot Finance (MUTH IN) and India Infoline managed to issue bonds at the opposite end of the credit continuum from DBS. Within this report, we highlight recent bank debt capital issuance that may have implications for Asian bank debt.

Asian HY Banks & The Global Debt Capital Markets

Mitsubishi UFJ Financial (MUFG) / Equity Bottom-Up

<ul>
<li>
Morgan Stanely/E*Trade Transaction: Morgan Stanley (MS.US) announced its intention to acquire ETFC.US for approximately USD 13 bn in an all stock transaction. According to Morgan Stanley, this deal is expected to be earnings accretive once ETFC is fully integrated and the aforementioned synergies are realized. In other words, over the next three years, ETFC will be earnings dilutive to Morgan Stanley.</li>
<li>
MUFG Should Worry About EPS Dilution: Given that Mitsubishi UFJ Financial Group (8306.JP) [MUFG] collectively owns 22.6% of the outstanding shares of Morgan Stanley on a fully diluted basis, and prior to this transaction Morgan Stanley represented an estimated and outsized 25.4% of MUFG's FY (March) 2019 bottom-line - despite MUFG's high reliance on gains. The ETFC transaction dilutes MUFG's Morgan Stanley stake by 2.55% to 20.01%. This transaction is anticipated to dilute MUFG's earnings attributable to Morgan Stanley by USD 160 mn or close to 8.0% YOY or 2% overall for MUFG in FY 2020.   </li>
<li>
MUFG Already Has Enough Headaches: Earnings at MUFG is quite tenuous. Outside of its high reliance on volatile sources of securities trading, impairment losses associated with its ownership stake in Bank Danamon (BNMN.IJ),  earnings pressures at Union Bank in California,  the re-jigging of the systems integration at MUFG NICOS too will weigh on future results. </li>
</ul>



Morgan Stanely/E*Trade Transaction: Morgan Stanley (MS.US) announced its intention to acquire ETFC.US for approximately USD 13 bn in an all stock transaction. According to Morgan Stanley, this deal is expected to be earnings accretive once ETFC is fully integrated and the aforementioned synergies are realized. In other words, over the next three years, ETFC will be earnings dilutive to Morgan Stanley.

MUFG Should Worry About EPS Dilution: Given that Mitsubishi UFJ Financial Group (8306.JP) [MUFG] collectively owns 22.6% of the outstanding shares of Morgan Stanley on a fully diluted basis, and prior to this transaction Morgan Stanley represented an estimated and outsized 25.4% of MUFG's FY (March) 2019 bottom-line - despite MUFG's high reliance on gains. The ETFC transaction dilutes MUFG's Morgan Stanley stake by 2.55% to 20.01%. This transaction is anticipated to dilute MUFG's earnings attributable to Morgan Stanley by USD 160 mn or close to 8.0% YOY or 2% overall for MUFG in FY 2020.   

MUFG Already Has Enough Headaches: Earnings at MUFG is quite tenuous. Outside of its high reliance on volatile sources of securities trading, impairment losses associated with its ownership stake in Bank Danamon (BNMN.IJ),  earnings pressures at Union Bank in California,  the re-jigging of the systems integration at MUFG NICOS too will weigh on future results. 


Mitsubishi UFJ Financial Group - MS Deal Compounds Earnings Challenges

United States

The Goldman Sachs Group, Inc., a bank holding company, is a global investment banking and securities firm specializing in investment banking, trading and principal investments, asset management and securities services.  The Company provides services to corporations, financial institutions, governments, and high-net worth individuals.

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Goldman Sachs Group (GS US)

Prime US REIT: Harnessing the Live-Work-Play Dynamic

For property veteran Barbara Cambon, buildings are not just a heap of bricks and concrete. Instead, they are dynamic structures...

Singapore Exchange Ltd (SGX)

QE6 – To Infinity and Beyond

Darkest Hour Ahead: The US is entering its darkest hour with the dumb college kids at spring break being the tipping point for community spread...

Thomas J. Monaco

Deja Wu – Corona Virus Now Infects Global Financials

Dusting Off the Old Playbook: The globe is finally coming to the realization that corona virus containment means that global economic activity...

Thomas J. Monaco

Asian HY Banks & The Global Debt Capital Markets

In the global debt capital markets, Additional Tier 1 (AT1) bonds continued to price at levels attractive for their issuers. In addition to...

Hank Calenti, CFA

Mitsubishi UFJ Financial Group - MS Deal Compounds Earnings Challenges

Morgan Stanely/E*Trade Transaction: Morgan Stanley (MS.US) announced its intention to acquire ETFC.US for approximately USD 13 bn in an all stock...

Thomas J. Monaco

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