Bonds In Conversation : Paying The Price For Another’s Mistakes
A lesson to be learnt in the massive traffic jam on the Singapore side of the Johor causeway – what a wonderful position to be in for others to pay the price for your mistakes. 
I had plenty of time to read all the negative credit news while because I could have flown to Hong Kong for the time it took to just cross the causeway yesterday apparently due to some lapse in security some days earlier which let an alien into Singapore. Thus, the rest of us have to suffer for the security’s and the alien’s mistakes.
The situation in China is precarious with investors waiting on edge as ICBC wavers between bailing out the trust or not. They are truly no beholden to and it would set a dangerous precedent indeed if they did, for these are not small isolated solar companies anymore.
The latest is that ICBC won’t “rigidly” pay investors for possible losses related to a trust product that it distributed, CNBC reports, citing Chairman Jiang Jianqing, as reported on CNBC even as China raises the CNY reference rate.
Adding fuel to the fire is the media repors that some farmers’ financial co ops are failing to pay up.
Jan. 24 (Bloomberg) — Media reports that some farmers’ financial cooperatives are failing to pay depositors may be another sign of rising financial stress in China as interest rates rise and economy slows, Zhiwei Zhang, China chief
economist at Nomura, wrote in note yesterday.
• Continues to see credit defaults to occur in corporate, LGFV and shadow banking sectors in 2014
• The fact that CNR, a major official news agency in China, reported on co-ops may suggest govt stance on financial risks is to acknowledge problem, strengthen regulations
• NOTE: Some farmers’ financial cooperatives in the eastern Chinese city of Yancheng start paying back depositors after local government intervenes, People’s Daily reports today
Whilst the distress in Asia appears to be contained in just Chinese credit space, we should expect contagion to spread to the region in due course as Latam and Turkey continue to be battered resulting in historic lows for the TRL and ARS.
Yes, I know we did no wrong. But it is all about paying the price for others’ mistakes.
SINGAPORE
Meanwhile we had a good week in SGD space with today’s Industrial Production numbers surprising on the upside coming at 6.2% YoY growth against expectations of a drop of 1.4%. CPI numbers coming lower gave the 10Y SGS a boost for it to rally 1 ct on the year, beating most corporate bonds out there which is a pity as banks were busy selling the new issues out of HDB, Midas and Mustafa Holdings (today’s deal).
HDB printed its longest paper yet, a SGD 600 mio 15 year bond at a coupon of 3.948% maturing in 2029. The equivalent SGS maturing in 2030 is trading at about 2.97%. The paper has since rallied higher, indicating 100.25/100.55 today.
Midas Holdings came out with a SGD 85 mio 3Y new issue at 5.75% and we have Mustafa Holdings going for the same tenor today at a lower yield.
The market got all excited on Wednesday when Olam bought back $39.2 million of their 7% perpetual (at average price of 92.38) and $ 15 mio of their 6% 2022 paper (at average price of 92.96) in a potentially private deal as it would appear that bondholders were not informed of a reverse tender. Post the buy back, prices would appear lower possibly because of the general weakness in credit markets.
Olam Indicative Prices
| Issuer Name | Coupon | Maturity | Curr | Bid Price | Ask Px |
| Olam International Ltd | 6.75 | 29-Jan-18 | USD | 100.963 | 101 |
| Olam International Ltd | 6 | 25-Oct-22 | SGD | 91.15 | 93.15 |
| Olam International Ltd | 5.75 | 20-Sep-17 | USD | 95.373 | 96.46 |
| Olam International Ltd | 5.8 | 17-Jul-19 | SGD | 95.581 | 96.4 |
| Olam International Ltd | 7 | PERP | SGD | 90 | 91.5 |
| Olam International Ltd | 6 | 10-Aug-18 | SGD | ||
| Olam International Ltd | 7.5 | 12-Aug-20 | USD | 95.4 | 95.4 |
| Olam International Ltd | 6 | 15-Oct-16 | USD | 99.968 | 100.9 |
Leaving you with the indicative prices and wishing all a happy lunar new year next week.
SGD 2014 New Issues
2013 SGD Issues
2013/2014 USD Bonds Listed in HK and SGX
Happy Lunar New Year to Tradehaven!
Good morning guru. Currently I am holding 2 lots of Mapletree Treasury Services 5.125% perpetual bond. According to your price list which I scan religiously for the past 2 years, I have found out that this bond has always a higher yield (approx. 4.8% now) than most of the perps in the market despite it being a 100% Temasek backed company.
For comparisons, banks perps yield are ard 4.4%. SembCorp perp ard 4.5%. Even Mapletree Logistic Trust prep is hovering ard 4.4% despite Mapletree Treasury Service is actually the parent of the reit.
May you shed some light on why Mapletree Treasury Service prep is unloved by the market? Is it purely because its a unrated prep and banks are said to be not allowed to hold unrated preps in their books?
If this is the case, it make sense for retail investors to buy this solid prep due to the “mis-pricing” right?
Please advise. Gong xi fai cai to you!
Hi JFC,
Many reasons if you care to look but no one compelling one.
1. Mapletree is the holding company which is usually seen as weaker credit to the cash cow subsidiary.
2. Unrated, as you mentioned, MLT is rated.
3. Larger issue size SGD 600 mio so there is much more free float around than MLT (SGD 350 mio).
4. There is no Temasek guarantee even if it owned by Temasek.
Years ago, ST Treasury Services suffered the same problem.
Banks can hold perpetuals, just not alot of it because it eats into their capital, rated or not. Fund managers would prefer MLT for the above reasons. And for the retail, I am guessing it is easier to get leverage on a rated bond.
Yet, I am speculating the reason for the low ball price is because there is no liquidity in the markets and customers are just holding on to the bond and there is not much secondary market making for it. As such, the low price.
Good luck and happy lunar new year too !!