Aspial Bond Surprise – Consent Solicitation

The former Lee Hwa.

I confess I only took notice of them last week when they were cited as a comparable bond for the Courts SGD issue.

Dragging out their balance sheet then, as I was hoping to show that Courts was unnecessarily high leveraged, and I was surprised that Aspial had a higher financial leverage ratio as of end 2012 (ard 4.4 times) than Courts (2.4 times) and only shy of Olam’s 4.9 times (estimated).

Yet their bond prices were holding the 103 handle which was easy to attribute to the relatively short tenors of their 2 papers and the retail familiarity of their name.

The announcement of the bond holders meeting last Friday is apparently to loosen their borrowing covenants further starting from Jul 2013 and again in 2014.

On the outset the proposal to up the coupon in compensation by 0.15 and 0.2 of a percentage point does look a little poor, particularly if they intend to go out and borrow straightaway (and will probably have to pay a higher rate).

Nonetheless, loosening of covenants through consent solicitation is not that uncommon especially with high yield bonds in the US. The market practice is to pay a 1 off consent fee to bondholders, and only to those who voted for the proposal. Aspial, in this case, is offering the coupon increase to the minority votes.

The first thoughts to my head were 1. Hit by Gold Price ? 2. Property launch delay ? or don’t tell me, 3. Business expansion ? Just wild guesses, and in no way speculative, so please do not take me seriously there.

The options to bondholders are simple.

1. If it is a No vote (ie. under 75%), then Aspial would have breached a covenant. The option is to put the bond back to Aspial at par, 100.00.

2. If it is a Yes vote, then you would enjoy a coupon increase yet there is a potential Aspial would borrow more money in the future at a potentially higher rate, which would potentially also jeopardise your bond price.

I cannot say anymore at this point because I am not privy to any information nor have I read the Offering Circular.

Would appreciate if anyone who has further information to share make a comment.

Aspial’s bond prices today (levels only) appear unchanged – (perhaps even the banks are not aware ?).

Aspial 4.5% 09/2014  SGD 65 mio issue size 101.50/102.25
Aspial 5% 07/2015  SGD 85 mio issue size 103.00/103.75

Good luck !