New Issue Review : Tata Communications 3Y SGD 4.625%
Feels like a Hit and Run !
For a company (market cap USD 1.2 bio about 2.5 times less than its 2009 market cap) that has not tapped the market since 2009, they chose Singapore to launch their first issue and gave investors less than 4 hours to decide (hearing books closed at noon).
You decide if that is a good or bad thing ? I say its irresponsible and tactics of used car salesmen.
4 REASONS TO BUY
1. Retail customers do not read income statements to realise this company has been running losses since 2010 and has negative free cashflow.
2. Indian government owns 26.1% of the company and used to own 100% before selling part of their stake to Tata Sons in 2008 and it stopped making money since.
3. There is a Change of Control clause for Tata majority ownership meaning that bondholders can put the bonds back on the event Tata group loses control.
4. In this new world order, we are incline to believe that the Tata Group is TOO BIG TO FAIL.
My banker asked me what I thought of the bond ? The name or the price ?
My answer is the price.
The Indian government is rated Baa2/BBB- which makes it Aaa/AAA with its local rating agencies. Tata Group is Aaa locally which makes it Baa2/BBB- internationally as well. Tata Power, another loss making company, is B2/BB- (Moodys/S&P).
Best case scenario for Tata Communications would be somewhere in between Baa2/BBB- and B2/BB- given its government linked status. And investment grades end at BBB-, which makes it non investment grade and in the high yield category.
I cannot accept that the bankers are selling Indian Oil, IDBI and ICICI as comparables to this name ! A change of control clause is NOT A GUARANTEE.
A fair price for this bond would be on the other side of 5%, and I understand there is no leverage available.
Still the books are well oversubscribed and this bond has the NRI (non resident Indian) appeal and we all know banks are paying out bonuses now.
tradehaven, i have just found your blog over the last 1 month and you make a lot of sense to me. I am someone who has just exited a business and so have been introduced to the world of portfolio management via private bankers. A lot to learn and need to amass a lot of experience in order to not screw up.
One question. I thought a change of control clause protects bond holders? Why should it be bad for bond buyers?
Hi Investor,
I assume you are referring to the Tata Communications issue.
A change of control clause could be a boon or a bane to an investor. In the case of Tata Communications, it does not make sense for them to sell out on a loss making business and yet there is no need to guarantee it.
There are about a 100 Tata entities out there. And it is but a really small part of their entire pie, if you ask me.
Now if I had an Indian govt Change of Control clause, that would count a lot more, don’t you think ? (But the Indian govt has sold their share and does not guarantee they will not exit the company).
Sorry if I am dampening your exuberence over this issue, but I am pretty agitated that junk is being marketed at investment grade prices. None of the portfolio managers I spoke to today said they would even consider anything at less than 6%.
Good luck !
Thanks tradehaven, i did not buy the tata issue cuz yield at 4.25 is far too low for such a quality of company. And thanks for clarifying that a change of control clause is positive for bond holders but not if it means they price it cheaper esp if the change in control is not a big deal.
I started buying bonds past 2 years or so and built up some 30+ bonds in a rough bond ladder format and with some perps. Its a front loaded ladder. They have done ok but not spectacular due to some newbie mistakes i made like not checking quotes with multiple banks and so buying higher than i need to. Now bond portfolio YTM is 4.5% (6.2% with leverage) and i have some invest grade, some high yields, and some AUD, GBP and USD bonds to complement the bulk of SGD ones.
I started selling off the perps and those european bonds which have given 10 to even 25% gain in 1 year. My gut says taking profit cant be wrong. But the problem is that once i sell, i am basically leaving it as cash and logically will switch to equity as I have down bond allocation). Also, equity i have never managed to allocate the percentage i wanted. Right now only half allocated and this is after 2 years. So result is that cash position is like 20% of asset! Only property is allocated at full allocation.
Is this what you are doing? Common problem for investors now? I really wish there is a platform for people like me to share openly on investing methods and psychology….. there are such things for CEOs and for businessmen…. there should be one in asia for portfolio sharing…Do u know of any… i will gladly sign up and pay the membership.
Dear Investor,
Your gut serves you right and impressively so. Nice returns !
We are working on the platform that you hope for right now, just for Singapore and regional investors for idea sharing (and it will be free if I can continue to afford it). Hopefully our panel of experts will be of help given that they are nicely retired, like yourself.
Equity rules when bonds rue.
Good luck !
Tradehaven, let me know how i can participate. I am not retired and in fact am in my middle/late 30s… its just that i exited a business i built up and so became financially free overnight….. in fact, i am still trying to figure out what next to do.
Hi Investor,
Email tradehaven@gmail.com
We are looking for volunteer writers and forum managers etc.
Looking forward to hearing from you and any ideas you may have.
Best Rgds
I agree with investor – this piece on Tata Comms paper, like many of your other pieces Tradehaven, is very clear and at the same time thoughtful. Thank you. If you have time, do you have any views on Noble’s CNY 3 year 4% p.a. note which was announced today?. I have shied away believing the coupon is light – the banks are pushing this more on the back of (probable?) future Yuan appreciation rather than the quality of the issuer. JC
Tata Communications 3Y SGD this morning 100.75/101.00.
This is despite higher interest rates overnight.
Hi JC,
No view on Noble, I am a speculator too. Buying CNH is expressing CNH view and we are at historic lows which looks like it could head lower. Nevertheless my opinion is that there could be a pull back for the short term, long term appreciating trend still intact. Nothing rallies forever and the best example is the 30Y SGS which was the best performing bond in the market last year. It is the worst performing for the past 3 weeks, falling 6 cts.
Good luck.
Hi tradehaven,
Thank you so much for sharing with us your insights on the various new issues recently. Gained a lot from reading it. Btw it was reported that the Olam bond issue is 1.1X oversubscribed, may I ask is that a good or bad sign for Olam? Is the oversubscription rate supposed to be much higher than this or the fact that it is fully subscribed is a positive news for Olam? I think the USD Olam stock just fell 5% to USD 1.28, not sure if its related to this news. Also not sure if the Olam bond price such as the 6% 2022 and 5.8% paper respond positively or negatively to the news. Thank you so much.
Hi Oldfolk,
1.1X oversubscribed means fully subscribed by the rights holders which is common sense otherwise they will lose out. The 0.1 times is probably people trying to round up their lots which is so messy, in my opinion.
The other Olam papers appear to have priced in the news already and I do not see alot of reaction. Perhaps holders are just resigned to holding the paper.
As for the stock price, it is rallying on the good news of the fund raising effort.
Best Rgds
Hi Tradehaven
Thank you for the explanations. I’ll look out for the company quarterly report on 7th Feb just before CNY, not sure how it will turn out to be. I guess probably still negative cash flow all the way till 2015 at least. 🙁 Hope it will have not have any further negative effect on the bond prices.
Hi tradehaven
My friend was telling me the Olam 6% 2018 paper is now trading around par but the Olam 6% 2022 paper has went down instead but he’s not too sure about it. Wondering if you happen to know the latest Olam indicative bond prices. Most sincere thanks in advance.
Hi Oldfolk,
Don’t see Olam 6% 2018 at 100 unless it is a special price. It will make sense for the Olam 2022 to be lower in price because it is a 10Y bond compared to the 2018 and the 10Y interest rate has gone up considerably in the past week.
Here’s what I see as mid.
OLAMSP 6 10/25/22 SGD 92
OLAMSP 5 3/4 09/20/17 USD 93.15
OLAMSP 2 1/2 09/06/13 SGD 98.8
OLAMSP 5.8 07/17/19 SGD 93
OLAMSP 7 09/29/49 SGD 85
OLAMSP 6 08/10/18 SGD 94
OLAMSP 3 02/25/13 SGD 99.7
OLAMSP 7 1/2 08/12/20 USD 94.8
OLAMSP 4.07 02/12/13 SGD 99.9
Prices unverified so don’t hold me to task.
If I’m correct, the 7% Olam perps is still very much within the bid-ask range of 88.00-90.00.
The recent transacted prices are in the midrange of 89.00.
OLAMSP 7 09/29/49 SGD 85
Yes.
Ranges are pretty wide and your price should be closer to the market.
Strange some offers are lower but probably for small amounts.
Hi Tradehaven
Thank you for sharing your insights and updates on the various Olam bond prices. Just heard Muddy Waters hired two Singaporean lawyers to fight his case. Wondering if this is going to be a really bad sign. All the while, I was thinking Carson Block probably wont bother to attend a Singapore court case as he could have earn more by spending his time shorting another company instead.
One more day to the launch of the new Olam bond and the company quarterly result out next week also. Not sure if this is going to be positive or negative for Olam bonds.
Hope things will turn out well.
These things happen very often. It is just unusual in Singapore.
There is a Chinese saying, if you did not do anything wrong then there is no fear at night.
Likewise, if you have faith in Singapore listed companies, then there is no need to worry.
Yupp I have a bit of faith in Olam since Temasek think its worth their long term investment haha. But I have this idea that it just wont be good for any company to get into any form of a law suit even if they can win the court case. Cuz the management need spend a lot of time in it.
Btw does Sir happen to know what are the latest indicative Olam bond prices? The 6.75% bond seem to be trading a bit below 95cents in the stock market, not sure how the other Olam bond prices responded to the launch of the 6.75% bond.
Thank you so much again.