SGD Bonds Switch Ideas – Sembcorp vs Singpost, Olam vs NOL
Courtesy of a very generous contributor and market price maker. Some switch ideas for the SGD corporate bonds in your portfolio.
BUY
Sembcorp Perpetual Unrated 5% callable 08/2018 at yield to call 4.06% price 103.71
refix at 10Y rate + 3.187%
SELL
Singpost Perpetual rated A- 4.25% callable 03/2022 at yield to call 3.99% price 101.72
refix at 10Y rate + 3.692%
Singpost is higher rated but there is a 4 year difference in call dates and a very high probability of call.
Senior Comparables
Singpost 3.5% 03/2020 is 104.28/104.85 ( 2.71/2.61%)
Sembcorp 3.7325% 04/2020 is 104.80/105.30 (2.85/2.76%)
BUY
OLAM 5.8% 07/19 yield 4.86% price 104.29
SELL
NOL 4.4% 11/19 yield 4.22% price 100.88
Current Temasek ownership
NOL 67%
Olam 24.57%
Looking at Temasek’s portfolio of investments for energy and resources, Olam looks like the crowning glory for this segment given the attractive valuations over which the offer was placed. If the offer to buy all the shares of Olam goes through there is a possibility the company will be taken private as listing requirements mandate the stock’s free float to be above a minimum of 10%. This would enable the management to privately restructure the company’s much publicized debt burden amid its inherently volatile business model.
Switching the lens to NOL, the company has fallen short of expectations (loss making YoY since 2011) but has structural importance to Singapore’s economy being its first and only national shipping line. In spite of this, 42 bps of discount seems too generous especially if the Olam takeover goes through.
i think the NOL to Olam idea sounds ok, since switching from NR to NR.
but i would not agree with the switching from Singpost perp to Sembcorp perp mainly because I always view bonds using a leveraged strategy.
the investor is going to lose his leverage benefit (even if he doesn’t leverage now, he is giving up the possibility of leverage) when he trades in his A- rated perp for an unrated perp.
my opinion is always invest in bonds using leverage (loans). Use cheap money to make more money.
buying bonds with cash is not optimum in my view.
Hrmmm.. So Olam taken private by temasek is a foregone conclusion ?
It is HUGE ! Though I am just not sure if everyone really knows that they are doing these days.
Hi,
Looking at olam bonds, isnt the 6% with maturity 2022 with YTM 5.5% a better bet?
What are you guys views on the risk of olam bonds ? Thanks.
Km
Olam bonds should be, at best, fairly valued. Unless you want to give them credit for work uncompleted.