Best Funding Solution Winner: Singapore Technologies Engineering Ltd (STE)

Published: Apr 2021


Photo of Colin Teo and Gamst Ong, Singapore Technologies Engineering Ltd (STE).

Colin Teo

Group Treasurer

ST Engineering is a global technology, defence and engineering group specialising in the aerospace, electronics, land systems and marine sectors. The Group employs about 23,000 people across offices in Asia, Europe, the Middle East and the US, serving customers in the defence, government and commercial segments in more than 100 countries.

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Innovative funding mix delivers several firsts in the market for STE

The challenge

As part of its strategy to grow revenues from global markets, STE completed three strategic overseas acquisitions (namely MRA Systems, Newtec and Glowlink) totalling SG$1.1bn (c US$800m). To fund the acquisitions, which were the largest in STE’s history, the treasury team faced numerous key challenges:

  • Securing diversified financing sources at the most competitive pricing under a tight schedule.
  • Mitigating the risk that acquisitions might not be completed until anti-trust approvals had been obtained, amidst high geo-political tensions in 2019.
  • Matching the financing tenor with the projected future free cash flows to optimise capital employed and minimise negative carry from excess cash in the future.
  • Matching the funding currency to the underlying economic currency of the investments to avoid foreign currency volatility in the future.
  • Engaging the rating agencies to anticipate any negative impact on the Group’s AAA credit rating from these acquisitions.
  • Recycling capital to fund any future investments.

The solution

The team devised a financing roadmap from bridge financing to term-out financing. Given STE’s strong AAA credit rating and the market conditions, the most competitive funding sources were the debt capital markets. To mitigate the inherent risk that acquisitions may not be completed due to anti-trust reasons, STE decided to undertake short-term bridge financing first, followed by term-out financing. The company assessed the underlying economic currency of the investments was US dollar and hence US dollar debt should be used to form a natural hedge against the US dollar inflows.

In August 2019, STE set up a US$1.5bn US Commercial Paper (USCP) Programme1 and issued a total of US$1.1bn for acquisition bridge financing and working capital requirements in the US. The programme was assigned P-1/A-1+ by Moody’s and S&P respectively.

In March 2020, STE further established a SG$5bn euro medium term note (EMTN) Programme2 to leverage its AAA rating to tap the debt capital market for longer-tenor financing to optimise its short to medium-term funding mix and capital structure.

However, the period from mid-March to mid-April was challenging for corporates to obtain funding; market liquidity had dried up and credit spreads spiked when the devastating impact of COVID-19 became apparent. STE monitored the markets closely and seized the optimal pricing opportunity in late April 2020 to successfully issue US$750m five-years medium term notes at 1.5% coupon. The bond proceeds were used to redeem the maturing USCP.

Best practice and innovation

STE also actively explored alternatives to recycle its economic capital and improve return on equity. In February 2020, Total Engine Asset Management (TEAM), an engine leasing JV between STE and Marubeni Corporation, successfully entered into agreements for the sale of 30 aircraft engines using a securitisation structure3. The structure included US$257m of fixed rate notes offered in three tranches, and the placement of equity notes. It was the first aircraft engine-backed securitisation originated by a lessor headquartered in Asia. The transaction was well-received by the market and this resulted in an oversubscription across all debt tranches. The transaction also successfully established institutional investor relationship, which laid the foundation for future asset-backed securitisations (ABS).

  • The first non-bank company in Singapore to set up a USCP programme.
  • The lowest bond coupon/yield achieved for a five-year USD issuance by a Singapore corporate.
  • First aircraft engine-backed securitisation originated by a lessor headquartered in Asia Pacific.

Key benefits

  • Funding sources diversified.
  • More competitive pricing.
  • Significant interest savings.
  • Shareholder value increased.

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  1. For the US$1.5bn USCP programme, J.P.Morgan was the arranger while Citi, Wells Fargo and Mizuho were mandated as dealers. Citi was also appointed as the Issuing and Paying Agent.
  2. For the US$5bn EMTN programme, J.P.Morgan and DBS were mandated as arrangers along with Citi, Credit Agricole, Mizuho, OCBC, Standard Chartered and UOB mandated as dealers.
  3. For the ABS transaction, Citi acted as sole structuring agent and joint bookrunner together with Credit Agricole.

Anna Ziqu Men

Relationship Manager, Corporate and Investment Banking
Citi, Singapore

For the engine ABS transaction, Citi acted as sole structuring agent and also joint bookrunner. It is the very first Aircraft Engine lease ABS originated by lessor headquartered in Asia. Under the US$1.5bn US Commercial Paper (USCP) programme, Citi was mandated as one of the dealers and also the Issuing and Paying Agent. It is the first non-bank company in Singapore to tap the USCP market. These transactions helped STE to diversify funding sources away from traditional bank loans, generate significant interest savings, and also recycle economic capital.

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Jagdish Surtani

Executive Director, Fixed Income Origination
DBS Bank Ltd

DBS gave a recommendation to the Issuer early on to establish a S$5bn, Multi-Currency MTN Programme which would provide a ready documentation platform to issue bonds in an efficient and timely manner.

As Joint Arranger, DBS executed the establishment of the Programme under a tight timeframe which enabled the Issuer to be in a good position to monitor market conditions for a potential launch of the bond. In spite of the COVID-19 crisis, and with DBS’ support, the Issuer garnered a large, high-quality orderbook and priced an upsized bond transaction at the lowest, fiive-year USD coupon for a Singapore issuer in the past two decades.

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Nikhil Vaswani

Relationship Banker, Corporate Banking, Singapore
J.P. Morgan

J.P. Morgan led the debut issuance of ST Engineering’s US$1.5bn US Commercial Paper (USCP) programme that was followed by the bank’s lead role in their second landmark issuance – a US$750m five-year senior notes offering. Both transactions were very well received by the financial markets, paving the way for ST Engineering to become the first Singapore corporate to tap the USCP market and achieving the lowest five-year yield for its bond issuance.

Besides ST Engineering’s solid credit rating, the strong partnership between ST Engineering and J.P. Morgan, combined with the seamless execution by both teams, led to the success of these two landmark transactions.

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Freddie Ong

Co-Head Corporate, Commercial & Institutional Banking
Standard Chartered Bank, Singapore

Standard Chartered Bank is very proud to have been involved in this award-winning solution both as book-runner in the fixed-rate bond and as lender in the revolving credit facility (RCF) in the US. This award is further endorsement of the team’s ability to lead the way in innovative solutions; execution was perfect. We are pleased to be banking partner to Singapore Technologies Engineering Limited for more than a decade and we look forward to continuing our excellent relationship and collaboration which I feel sure will lead to yet more success in the future.

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