Bond Idea : LippoMalls 7% Perp, 5.7% YTC, Supercharge yield 9 to 12%

LippoMalls 7% Perpetual bonds (Click here to learn what business LippoMalls is in)

  • Denomination : S$250,000
  • Maturity : Perpetual
  • Callable on 27 Sep 2021 and every 6 months thereafter at par
  • Coupon Reset (on 27 Sep 2021 and every 5 years thereafter) : 5Y SGD Swap offer rate (now 1.8%) + 5.245%
  • Current price : 104.0 / 104.7 (commission of 0.25% is embedded in the price)
  • YTC (at 104.7) : 5.7%

It is also possible to supercharge LippoMalls 7% perp to give higher returns. I shall share 2 scenarios:

  1. Fund $85,000 and finance the remainder at 2.3%
  2. Fund $125,000 and finance the remainder at 2.3%

1. Fund $85,000 and finance the remainder at borrow at 2.3%

  • Value of bond purchased = $250,000 x 104.7% = $261,750
  • Annual coupons received =  $250k x 7% = $17,500
  • Annual finance fees paid = (261,750-85,000) x 2.3% = $4065
  • Annual profit = $17,500 – $4,065 = $13,435
  • Capital loss in 2021 if called = $261,750 – $250,000 = $11,750
  • Amortize this loss over 4.3 years = $11,750/4.3 = $2,732
  • Annual profit after capital loss = $13,435 – $2,732 = $10,703
  • Annual net yield = 10,703/85,000 = 12.5%

2. Fund $125,000 and finance the remainder at borrow at 2.3%

  • Value of bond purchased = $250,000 x 104.7% = $261,750
  • Annual coupons received =  $250k x 7% = $17,500
  • Annual finance fees paid = (261,750-125,000) x 2.3% = $3,145
  • Annual profit = $17,500 – $3,145 = $14,355
  • Capital loss in 2021 if called = $261,750 – $250,000 = $11,750
  • Amortize this loss over 4.3 years = $11,750/4.3 = $2,732
  • Annual profit after capital loss = $14,355 – $2,732 = $11,623
  • Annual net yield = 11,623/125,000 = 9.3%

What returns are you looking at for your investments? Is 9 to 12 % annually good enough for you? If you would like to know more about how to supercharge bonds, sign up for my next bonds introduction class http://sb1.eventbrite.sg