SGD Corporate Bonds Alert : Bullshit

I am laughing at this Bloomberg report, Tatas Pace Singapore Slump as Rout Closes Market: India Credit, mentioning Tata Steel SGD notes handing investors a 6.4% loss in June, according to data out of Bloomberg.

”     Tata Steel Ltd.’s May 2023 notes handed investors a 6.4
percent loss in June, data compiled by Bloomberg show, the most
among overseas issuers in HSBC Holdings Plc’s Singapore
corporate bond index. Tata Motors Ltd.’s May 2018 notes lost 3.8
percent and Indian Oil Ltd.’s October 2022 bonds fell 3 percent.
The average 2.3 percent drop in Singapore compares with a 0.1
percent loss in Taiwan and a 0.1 percent gain in Malaysia,
according to indexes compiled by HSBC.”

Out of curiosity, I did some rough math to check on their allegations.

If you had bought Tata Steel 4.95% 05/2023 at 100 and paid the 10 year interest rates at 1.695% to hedge the bond that day. You would be sitting on a bond price of 101.50 (estimated) today instead of 91/93 cts that we are seeing.

10Y interest rates have gone up from 1.695% in April when the bond was launched and is at 2.63% today. This means that Tata Steel’s credit spread has TIGHTENED for the better.

The report goes on to say that Indian credit is widening.

“The cost of insuring the debt of government-controlled
State Bank of India, seen as a proxy for the sovereign, for five
years using credit-default swaps surged 86 basis points last
month to 275, the biggest jump since October 2008, according to
data provider CMA, which is owned by McGraw-Hill Cos. and
compiles prices quoted by dealers in privately negotiated

By the same assumption, if Tata Steel 10Y widened by the same amount, the bond price would be closer to 83-85 cts. And Tata is not state owned which makes the likelihood of it widening out more than 86 b.p. higher.

Singapore has been good to the offshore issuers because of the lack of transparency and comparisons. If Tata Steel had issued in USD, 1. it would not have got away with 4.95% for a coupon in the first place and 2. the bond would have been decimated well below 90cts  by now.

Instead they can recognise a meaty profit of 9 cts on their issue which I wonder if will be reflected in their balance sheets as a reduction in liability ? or extraordinary gain ?

The article suggests value in SGD corporate bonds now but at the same time highlighted that banks are taking less risk and we are not seeing many prices in the market makers.

Where is the value when the bond yields have not adjusted to reflect the global credit widening ?

I am not suggesting that all SGD corporate bonds are expensive, and I apologise for picking Tata Steel as an example for there are many other bonds in the same league. I am also not suggesting that the Tata Group buy ice cream for all their investors as a sign of gratitude and I have nothing against Bloomberg for publishing the story.

I just hope the public will not be mislead into thinking that the waters are safe when the truth is that we all do not know. Having said that, I will maintain that this is just my opinion in a market of willing buyers and sellers, as evidenced in the Oxley deal yesterday, and I will shut up now.

And knowing what will probably happen, the article will appear in the Business Times tomorrow and everyone will be scrambling to buy bonds.