Thursday, 28 January 2016

Comparison of CapitaMall Asia 3.8% bond vs Frasers Centrepoint Limited 3.65% bond at current market price

I have recently purchased CapitaMall Asia (CMA) 3.8% bond at $1.003. The price of this bond has since increased. Frasers Centrepoint Limited bond is currently trading below par at $0.982, and I am wondering if it is a better buy than CMA. My philosophy of buying bonds is to hold till maturity whenever I can, as such, this comparison between CMA bonds and FCL bonds assume that they are held to maturity.

Like CMA 3.8% bond, FCL 3.65% bond also have an optional redemption date. However, for the FCL bond, if it were to be redeemed earlier than May 2022, the bond will be redeemed above par. La Papillon from BullytheBear blog gave good details about this bond which can be found here.

Since the coupon dates for CMA 3.8% are in January and July, while the coupon payment dates for FCL 3.65% are in May and November, I simplified my comparison, by looking at January and July periods. Hence, the January period, would mean that the FCL bond had paid the previous November coupon, and CMA having just paid the January coupon. Similary, the July period means that FCL had paid the previous May coupon, and CMA having just paid the July coupon.

I have assumed FCL 3.65% is trading at $0.982 while CMA 3.8% is trading at $1.003. The comparison involves 10,000 units of bonds, and using PEOMS as a trading platform. For different platform, the fees may differ slightly, and you may like to use the following calculator to determine the total cost for stock purchase in Singapore.

I calculated the cashflow for CMA 3.8% bond at each possible redemption date. Similarly, this is done for FCL 3.65% bond.

capitamall asia
Cash Flow for CMA 3.8% Bond at each possible redemption date

Frasers Centrepoint Limited
Cash Flow for FCL 3.65% Bond at each possible redemption date

A comparison of the IRR for these two bonds, and the absolute extra amount to be received are as follows:

CMA, FCL bond
Comparing IRR for CMA 3.8% Bond and FCL 3.65% Bond at each possible redemption date

CMA FCL bond
Comparing Absoluate Amount Earned for CMA 3.8% Bond and FCL 3.65% Bond at each possible redemption date

From above, it seems that the earlier FCL is redeemed, the better it is compared to CMA 3.8% in terms of absolute amount earned and the IRR.

If it were you, which bond would you buy?

Disclaimer: I am not a financially savvy person, so what I is written is based on what I deduce from my limited research and reading. This may not be an accurate account of the real scenario, and you are to do your own judgement on whether such funds are good or not for yourself. I won't be held liable for any inaccuracies or omissions (see also my disclaimer at the end of the blog).

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