Olam Perp Update
It sort of caught my attention that this bond is down 2 cents today while almost everything else is unchanged.
Still not quite at its Dec 12 lows of 78.5 so I suspect it could just be a chunky trade in the market that caused the banks to mark the price down and it probably means you will be getting calls from your banker to buy this bond on special.
The Olam Perp vs Olam 6% 2022 senior has widened out to a more reasonable 5% or so difference unlike the crisis in Dec when the 2 prices were converging.
At 83 cts, the 7% Olam Perpetual callable in 03/2017 will deliver 13% compared to the Olam senior 6% 2022 at 88 cts yielding 7.84%.
I plotted the chart of the perp vs the 2022 vs the Olam share price for your reference.
Hi tradehaven, is the call in 03/2017 at par or at a premium and whether is there a step up? Double digit returns look attractive and with the high premium, interest rate increase would not really matter. Thanks for the info.
Callable 03/2017 at 100. Otherwise coupon 7% to 03/2022 with a refixing at 10Y int rate +5.965%.
At the current yield, we are looking at 03/2022 which is why it is 13% thereabouts.
Another 13% bond would be Swiber perpetual, giving also 13% thereabouts to call in Sep/2015. This one is tricky because if they do not call in 2015, the coupon would be refixed at 3Y int rate +12.035% !! Riches ??
Good luck !
Hi tradehaven, may I ask do you happen to know what is the price of Swiber perpetual? I have been thinking for few weeks if it is a good idea to switch from Olam 6% 2022 to Swiber Perpetual or Ezra perpetual. May I ask, which of the two will be more badly hit when interest rate increase: Swiber perpetual or Olam 6% 2022? I have this very bad feeling that price of Olam 2022 6% may get just lower and lower as it is not perpetual and has no refix and no step ups superimposing on the fact that Olam has high gearing 🙁 I am not sure to what extend this thinking is correct.
May I also ask, will the new Temasek bonds be available to us just like the way when Olam 6% are launched? Thank you so much.
Based on pure interest rate rise, assuming it is even across the curve, then you would pick the shorter duration bond. But note that Swiber’s refix is at 3Y +12.035%. No point for them to call back at 100 if they have to pay more then.
And you are also assuming that during the rate rise, credit quality remains the same. A perp and a senior are very different especially between 2 very different companies (one small cap and one Temasek backed).
Thank you for sharing your thoughts again. May I ask, what are the alternatives that one can consider if he wish to switch out of Olam 6%? Will Ezion or GLP perpetual be a possible alternative? I have been praying for the price of Olam 6% to stablise at 90-91 region at least when it was around 90-92 region and hope that the coupon which I get can be used for me to break even in a year plus or so. From my layman’s calculation perspective, I am only getting 0.5% coupon every month (6%/12) but the price can drop easily by 3% in matter of good couple of days. I have this extremely bad feeling I am not getting anywhere at all for the past half a year.
Olam 6% is a fixed maturity bond so there cant possibly be any ‘step-ups’ scenario. When interest begin to rise and SGS 10 yr bond give 4-5% yield, I guess Olam price will plunge even more? I was thinking if I get some ‘high risk’ perpetuals like Swiber I can at least recover my capital loss very quickly? Or if I replace it with investment grade perps like Maple or GLP, though there probably wont be any capital appreciation, the price remain pretty stable and at least I feel I am getting somewhere, recovering my loss slowly but steadily. Hope Sir can share your thoughts. Many thanks again and have a great trading day ahead.
I really cannot say if Olam will underperform the perps if rates rise because perps are subordinate debt and will be hit even if they have shorter durations due to their call dates.
Yet some perps are better risk than senior debt.
Besides Olam vs Mapletree are different industries and it is hard to say if there will be no negative headlines on SGD Reits, like in the case of US Reits, soon.
So it is back to your personal level of comfort with the names and whether it is worth losing sleep over.
Actually you do not have to restrict your investment to Singapore if you want to take higher risk. I believe Portugal could potentially give a better return for less risk than Swiber. That is just my opinion.
Good luck !
Hi Thank you so much for sharing your thoughts and insights. Btw may I ask u refer to Portugal Government bonds? I asked my broker and banker he only deals with SGD and RMB stuff. I am wondering where I can find more information on it.
I am okay with both slightly higher risk and investment grade bonds with pretty decent yield. The thing that is making me feel particularly depressed and troubled is that even the MW episode is , in a way over, the Olam bond price for some reason goes down more than what the coupon can cover. It is now only indicatively 87 not better than when the MW saga initially occurred. From my layman perspective, that is a 13% loss and it will take 2 plus years for the coupon to just cover the loss even if I ignore the effects of inflation. One or two more years down the road, if interest rate is such that even SGS government bond give 6% yield, I supposed the Olam bond price will drop even more to maybe mid 70s? I really dun know.
I was thinking of the Maple and GLP perp because from my simple laymen thinking, since it has a refix of 4.2% + 5Yr SOR in 2017, the following two scenarios are possible:
a) It Redeem the bond in 2017, so 4 yrs I will cover about nearly 20% or a bit less than 20% from yearly coupon I get, enough to cover my losses in Olam – recover my loss slowly but steadily. I was thinking before 2017 when interest rate rise, the price wont really drop that much? Cos people already anticipate a refix of their coupon in 2017, unlike Olam which will be 6% all the way.
b) It doesn’t redeem in 2017 so the coupon will be 4.2% + 5 Yr SOR which might be 7, 8 or 9%? I supposed that is still attractive compare with SGS bonds so I was thinking it might still be able to trade pretty close to par value?
Btw may I also ask, when interest rate increase, am I correct that it has a bigger chance to affect Mapletree Logistic trust more than GLP since Maple is a REIT and they rely on loans much more than GLP? Cos Reits by their nature don’t keep any profits and have to rely on borrowings?
I am deeply sorry to be troubling you with this again. Have a wonderful weekend ahead and may I re-express my appreciation for the useful information and thoughts u shared with everyone all these while.
It would appear that you had a medium to long term investment horizon when you bought Olam 6%.
Now you are considering switching to GLP or MLT.
Olam – highly leveraged with management signalling intention to turnaround business model of aggressive expansion, 24.07% owned by Temasek
GLP – STI component mkt cap SGD 13.5 bio rated Baa2/BBB+, 36.37% owned by GIC
MLT – mkt cap SGD 2.7 bio rated Baa1 (higher than GLP), 40.86% owned by Temasek
Reits do not always rely on borrowings. If you can recall, during the sub prime crisis, Reits bailed-in on shareholders by issuing rights issues to tide themselves through.
Cannot really say which one is the best choice over here as opinions all differ with some risk takers favouring Olam and others split between GLP and MLT.
Sorry, I guess does not help you much.
Hi tradehaven, thank you for the information and thoughts again. Btw UOB preference share has a call date September 15 2013. I am wondering how likely they will redeem the preference share. I think their next call date is sept 15th 2018 if I am not wrong. If you happen to know it has declared whether it is calling or not calling it back, it would be really great if you can share the information first hand. Thank you so much again and have fantastic trading week ahead.
UOB has come out with new indicative 5% preference shares this morning.
This has greatly increase the chance of redeeming the existing 5.1% PS.
Hi Jim thanks for sharing the information. Would deeply appreciate if you happen to hear any updates on it. Wondering how will it perform when it starts trading.
I supposed the new UOB 4.9x% PS price range should be well within DBS 4.7%, GLP 5.5 & MLT 5.35% very soon or around 101.50-102.00 bid/offer.