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 !
Would u sell if u r holding on to the bond on?
Thanks!
Hi Ah Hock,
I would find more information first. As to why they need to borrow more money.
Then it would be easier to assess. Because it could be good news too.
It is a tough choice for bondholders, but since it appears that the banks do not know yet, the early bird catches the worm.
Still see 101.50/102.25 for the 2014 and 103/103.75 for the 2015.
It could be that there are still people out there buying the bond without knowing about this event !
no wonder the ASPSP bond prices rallied so much. -.- wont be surprised if there were inside buyers
Unlikely scenario.
This event is a big score for equity holders and given that it is a family owned operation, this move would benefit the equity if anything.
I would say it is due to market ignorance of the bondholder meeting, including some banks making prices out there.
hey tradehaven,
u’r right, even my r/s manager whom i bought the bonds from was surprised upon hearing this from me. If I’m not interpreting tis wrongly, the grp who intends to hold it till maturity with no intention to sell will benefit from this (since the intention is to benefit from the biannual payout) than the grp who may have intention to sell it before that (assuming Aspial issues another bond with higher couppon rate that depresses the price of the existing bonds).
Quick sell before they mark down the price !!!!!!
If i belong to the grp tht intends to hold till maturity then movements of the price doesn’t affect me. Besides, if i were to sell now, i wld hv made a loss on tis. I’ve a different intention on buying bonds; I don’t buy and sell according to price movements, my intention is to solely gain from the payouts.
Yes.
It is a premium bond. One way to look at it would be to get 3% upfront and buy another bond with the same coupon but at 100 for example.
If you had bought the 30Y 2.875% Singapore Government bond last year at 100, and sold it at 110 for example, you would have gained 10% upfront. The money could be reinvested at 2.875% for another bond and you are still 10% richer.
Definitely not criticising your investment strategy.
Just suggesting a different angle to look at it.
Yea, i understand where u’r coming from, just trying to understand the options. But appreciate your frank opinion! Honestly, i tink u guys offer better advice than my r/s manager who basically executed my transactions n tries to sell me products that doesn’t take into account my interests nor my risk profile. Ppl like u, i seldom see, at least not in the financial sector. Keep up the great work!
Hi Test
A long time ago, I used to be the one making the prices to people like you before the sales desk and RMs took their cut.
Thanks for your support.
Well, for me i would sell it esp if it was bought at IPO and wait for another primary issue
Called my RM today who said she has not heard about the bondholder meeting! She insisted the bid is 99.50 since the day of IPO and I got it at IPO for 100.80, she claims that no one is selling. The fact that I could see you posting offers, her claim can’t be true. She is basically telling me to hold it till maturity, thought I have learned to be smarter to take a shorter date note, yet still can’t run away from the chaos of this market. I really thank you for making the bond prices more accessible to retail investor like me.
That is rubbish. Local bank still showing 101.50 bid for the 2014 and 103.00 bid for the 2015.
We all buy stuff from banks and sometimes get screwed but I wouldn’t blame the RM, actually, because they do not know as well. Yet we keep running back to them for more.
Anyway its too late to sell if you have a lot of it. The banks have very little holding room for this small name.
Thank you for the price. Since it is a short one and at 4.5% I could still hold till redemption. I am glad that I chance upon Tradehaven, else I would be still doing a lot more stupid stuffs.
Curious though, how are u able to see the daily bid/ask? Or is this info only available only to the institutions like banks/brokers?
It’s an OTC market which means the prices can be anywhere and no 2 banks will make the same price etc.
I have to ask around for interbank prices.
Will launch a bond directory hopefully soon for people to refer to.
Banker advised that her bond desk is not competitive after I commented that her bid is 2% lower than elsewhere. She said, however, I can transfer my bonds under custody to elsewhere but pay 0.5% handling fee, on top of custodian charge. So, beware!
Do keep us posted on the developments of the bondholders meeting.
Good luck !
Sure, provided the bank can process the title transfer in time for me to attend. Currently under bank nominee account. Thought I own it, but not so. Gone through much wrangle to get to this point. Must thank you for alerting me of the meeting.