Constructive Ideas For Singapore Markets : GLP and MLT
Some readers may have noticed that I pulled the post on the idea of how some bonds could be issued more profitably for some than others. As it turned out, opinions were that it could have touched raw nerves and my self preservation instincts have never been very strong but I do have a strong phobia for the authorities, as well as lizards and reptiles (aka herpetophobia).
Do not ask me to choose which is worse, but I believe you can run away from reptiles. Besides I have been assured that they do not award public service medals for whistle blowing, although my post could not possibly have implicated anyone because it was straight out of my head. Nonetheless, I have no desire to be a dead hero because notoriety is not in my life’s objectives and I note that little people who stick their necks out against big institutions like the reporter in NKF saga (who happens to be an ex schoolmate), really do not gain much in the end.
Therefore I will do as some have suggested, write on constructive themes which is what I will attempt to do today, thereby risking further ridicule that my life must be sorely lacking in excitement to be writing on a weekend as compared to friends who are in Macau for the APPT Poker tournament.
The Ali Baba IPO has been bugging me for a few days and reading up on it, you cannot help but notice some recurring themes and a glaring one has been their plans for the future in which logistics investments feature prominently.
In one Reuters article about the impending IPO, GLP popped up alot which got me intrigued and I did some further reading.
So much for the claims that there is oversupply in warehouse space at the current rate of construction, we cannot view it as reality. Just as half the office space in Singapore downtown is probably not inhabitable by market standards in those dilapidated old buildings awaiting refurbishment, the reality on the ground in China is probably the same.
I have made up my mind about logistics but we do know that the evil twin to e commerce would be the bread and butter retail sector that are making up the tenants in all those mall REITS that we have and I have the perfect explanation for our falling inflation because I am getting sneakers from Aliexpress at a fraction of their price in Singapore. If only we could order our dim sum from China too because after a 6 month hiatus from Crystal Jade, I discovered this morning that there is nothing under 4 bucks on their menu anymore.
The changing face of the Chinese retail landscape towards e commerce is a compelling story.
“So far this year, GLP has built 280 warehouses in China, creating around two million square meters of floorspace, at a cost of $1.2 billion.
While Chinese e-commerce firms like Alibaba already have political clout, foreign investors are teaming with influential local partners to help them buy land.
GLP, for instance, linked up with politically connected deal maker Fang Fenglei’s Hopu for a $2.5 billion deal earlier this year, which also included Bank of China. Since signing that deal, GLP has also established partnerships with China’s largest food and agricultural products supplier COFCO and logistics company Sinotrans.” http://www.reuters.com/article/2014/05/11/us-china-warehouse-idUSBREA4A0AT20140511
The stock price of GLP has bounced quite a bit of late, along with MLT, Mapletree Logistics Trust. Both of them I choose because of their logistics property exposure to China, GLT being the larger of the two.
Both these companies have SGD perpetuals which I recommended to friends last year when their yields broke 5% during the initial market panic on the Fed’s taper.
Both are trading under 4% on the offer side now with call dates approaching in 2017.
GLP 5.5% callable 04/2017 (rated BBB-) was the harder hit bond last year because of its SGD 750 mio outstanding (compared to MLT’s Baa3 SGD 350 mio).
It seems that the market has wised up to the the terms of perpetual securities (which is why Cheung Kong 5.125% perpetual is still at 95 cts).
And even at their 4%, or thereabouts, yield there remains value in them perpetual bonds regardless, for the scarcity in the securities for both companies and the fact that folks are willing to fork out almost the same for lesser quality names in the 3 year sector such as Golden Agri and Far East Horizon in recent months.
Yet, I would put GLP stock on watch too, to buy on pullback despite their poor dividend record, along with MLT which is paying a good 6% Reit return. It is a growth story.
Ali Baba will be hitting the streets soon given the poor performance of Nasdaq, as fund managers continue to liquidate to make room in their portfolios for the new benchmark. My personal strategy has never been to go for the top dog in a hot IPO (which was how I managed to buy Facebook at 20 bucks), but to look for the complementary assets. It is like avoiding Tesla, but buying the fuel cells but that is a story for another day.
Wishing everyone a good weekend.
Thanks again TH,
I note your comment on the Cheung Kong S$ 5.1/8% Perpetual. And I am fascinated by the comparison you make with a couple of other S$ Perpetual papers.
I own a couple of lots of the CK perpetual paper and have seen its price rise from (stubbornly) below S$ 0.90 several moths back to the mid S$ 95’s – last done that I’ve seen – you will have better info. My other Perps (Ezion, Ezra, GLP, Olam – bless you Temasek) are all now trading at or above parity after good recent runs – I suspect all will be called at the Issuer’s first opportunity. Even my Genting S$ 5.125% p.a.’s are in the S$ 98’s, having had a not-too-shabby run of late.
I’m perplexed why the perpetual Cheung Kong S$ paper is such a laggard – it is by some margin the worst debt-paper performer I have. Why? Quality name, the higher quality of the subordination (have I got that right?), coupon is competitive etc. etc. Is it the lack of any step-up? Perception that CK bosses will never call?
Reason I ask, is that I am looking at Cheung Kong’s US$ 5.3/8% Perpetual, callable in January 2018 (ISIN XS0876766766). Again no step-up at any time. But a) I can get it now for ~ US$ 91-and-a-bit, including broker fees, giving a yield-to-call of almost 6%, b) it pays a slightly higher coupon than the S$ perpetual brother and c) trading appears to be highly liquid. Am I insane (I know the definition of insanity)??
I’m obviously missing something – and may be I’m getting bogged down with not looking too far beyond the Cheung Kong name.
A good, restful weekend to you as well TH.
Hey JC,
I did a table summary of the SGD perpetuals and their features last year. http://52.77.202.71/market/revisiting-sgd-perpetuals/
Note that whilst Cheung Kong is a rare Senior perp, along with Singpost and Swiber, it does not have a coupon refix which is worse than the Genting perp which has a fixed rate re-fix.
It did not go down too well last year during the onset of Fed taper fears. Imagine a bond that goes on forever at the same coupon ? Very similar to the Reliance Industries USD 5.875% perpetual which crashed to a sub 80 cts price sometime in Sep 13.
The seniority does not count so much for a name like CK, as much as it does for Swiber because CK is, afterall, 1 HK (its ticker on the HSI) and takes up 2.5% of the HSI index.
Currently the prices have regained traction because the rate hike expectations have been damped due to the “new neutral” market mindset – that the new neutral is going to be sub 4% Fed Funds terminal rate (more like sub 3%).
Bond holders can rest easy while it lasts. Just remember that perps have no liquidity during a sell off because banks have very limited lines to hold them which is how you saw the lows of last year. Am not sure if the low listed for CK per at 87.50 was dealt in Sep 13.
Hope I have explained it sufficiently. Have been having trouble with the site which is the reason for the new look today. Was unable to access for the whole of yesterday !
How about Singpost as a play on e-commerce logistics? :p
From DBSV:
“Singpost disclosed for the first time that e-commerce and its related activities contributed 26% of group revenue. About 61% of e-commerce business is derived from the Mail segment, in the form of higher international mail packages, 31% from Logistics and 8% from Retail & E-commerce segment.”
“Singpost has signed on well-known brands and 600 customers for e-commerce logistics so far. The group has put all the pieces together – transportation, warehouse, last mile delivery and online presence.”
Retailers looking weak ….
S&P report https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1317753&SctArtId=237286&from=CM&nsl_code=CMTFRI&sourceObjectId=8617175&sourceRevId=1&fee_ind=N&exp_date=20140520-12:57:33&sf2994702=1
Let’s get it right here. Sing Post is not going anywhere near China now and there are only that many XiaoMi phones Singaporeans are going to order.
That the Singapore logistics scene will continue to thrive, it is still but a small geography to cover and lazy Singaporeans can really drive down to PSA to collect their goods if they want.
I will buy Singpost as a dividend play (4.24% gross) and given that I missed out on their perpetual bond back in 2012 (because I wasn’t privileged enough a customer) and last year at 97 cts low (which I think did not trade), I will not be rushing to pay 3.8% now for an 8 year paper.