Cannibalisation is not my favourite word and I cannot see any good news in a new issue that sells itself against its predecessors.
Let us be cognizant that there was a failed attempt just earlier this year to bring out a perpetual which they quickly replaced with a 5Y senior carrying this fabled Change of Control clause of a 1.5% step up if Temasek ceases to be a major shareholder. The other 2 issues floundered immediately as the clause was not retrospectively applied.
Do not hold me responsible for this graph of the NOL 4.65% 09/2020 price (source prices not verified). But it is highly possible that this happened when they started exploring the possibility of a perpetual earlier this year.
I wrote about NO ! NO ! NOT NOL ! back in April and I like to think once bitten, twice shy.
The bankers are sending out the other NOL issues as comparables now.
NOL 4.25 04/2017 101, 4%
NOL 4.65 09/2020 101.375, 4.44%
NOL 4.40 06/2021 99.83, 4.42%
I do not know where they are getting their levels from and if, indeed, the levels are correct, it would be an excellent idea to sell their old issues and buy the new one. Particularly the 2020 and 2021 issues which are not covered by the Change of Control clause. And this reeks of cannibalism.
But upon examining this issue up close, there is in fact pretty little of value in it if you factor in the 2 call options you sold to them in year 5 and 6 ie, 100+ cpn/2 and 100+cpn/4 respectively.
A portfolio manager I just spoke to says the 2017’s are probably the best value of the lot. Yet, their spread keeps widening. Every new issue keeps coming up better than the previous one.
NOL 2021 came out SOR+280, current spread SOR+295 bp.
NOL 2020 (10Y) came out SOR+308, current spread SOR+339 bp.
NOL 2017 (5Y) came out SOR+308, current spread SOR+315 bp.
New NOL 2019 (7y) is coming out at SOR+320 bp. Makes the rest look bad.
1. NOL said on Oct. 25 it expects to post a full-year 2012 loss after losing money in the first two quarters. In fact, it has lost money 2 out of the last 3 years. CIMB Securities has cut their expectations to underperform, citing expectations for 2013 to be a dismal year.
2. NOL has just disposed of their HQ building for $380 million to Fragrance group.
3. For an unprofitable company, their long term liabilities have TRIPLED in the past 5 years (in fact, more if you count 2012). What do they need the money for ? They are burning cash.
I stand by my view in April. I have no loyalty to a company that has no loyalty to their bondholders and I know because of the NOL 2008 issue that was stuck for a long time. And now, as I hear that the books are in excess of SGD 300 million, I shall save sympathy for the more deserving. Because now we are at three times bitten and, still not shy.