SGD New Issues Review : Geo Energy 3.5Y 7% and PIL 3Y 6.25%

July 7 (Bloomberg) — As early as today
• Issuer: New Geo Energy
• Initial Price Talk: Low 7%
• Size to be determined

SGD 300 mio borrowing programme.

Market Cap : SGD 341  mio. IPO back in Oct 2012.

Obama is not a friend of the coal industry and investors are running shy of coal after his recent EPA (Environmental Protection Agency) proposal to reduce emissions of coal-fired power plants. Thus coal bonds are the worst performers in the bond market year to date as a Bloomberg article noted that the only bonds that lost money this year are junk rated coal producers.

ICE Newcastle Coal Futures

But the future looks brighter.

coal future forward prices

There is little to comment about the little covered and largely insider owned (37.85% held by public) Geo Energy, with a decent set of accounts and operating in profit zone, unlike the huge negative publicity we have been getting on Bumi Resources and the dirty, physically and operationally, business of coal and misappropriations as reported in the news.

Interesting to note that Jim Rogers has a minority stake of 0.15%  in the company, as a company director, and may increase his stake in the company at some point in the future with a little note in their shareholding about a 2,000,000 or so call option.

I am not a big fan of coal but at a coupon of low 7% and a huge PB rebate/commission for selling this stuff, I expect the bonds to go quite quickly.

Comparables :
Kris Energy 6.25% 06/2017  102.55/102.80 5.29/5.2%
Trikomsel 7.875% 06/2017  100/100.50 7.875/7.68%



ISSUER:  Pacific International Lines (Private) Limited
SERIES:   001
STATUS: Direct, unconditional, unsubordinated and unsecured
RATING: Unrated
FORMAT: Reg S, S274 & 275 of SFA, issuance off S$1 billion Multicurrency Medium Term Note Programme
TENOR: 3 years
INITIAL PRICE GUIDANCE:  6.250% to 6.375%
REDEMPTION UPON CHANGE OF CONTROL:       At 101%, in accordance with the Programme
REDEMPTION FOR TAXATION REASONS:        Yes, in accordance with the Programme
PAYMENT: Semi-annual, actual/365 (fixed)
DETAILS: SGD250K/Medium Term Note Programme/Singapore Law/CDP

Credit highlights for PIL below:

– Pacific International Lines (Private) Ltd is a leading container liner and multi-purpose service provider with over 47 years track record. Core businesses include shipping (~69% of FY13 revenue), container manufacturing (~28% of FY13 revenue) and other businesses such as logistics (~3% of FY13 revenue).

– The group has established leadership positions in markets with barriers to entry. The group is the 16th largest containership operator globally, with 177 owned/operated vessels, with global coverage to more than 500 locations in about 100 countries. Singamas is the 2nd largest container manufacturer with ~21% estimated global market share.

– Focused on growing emerging markets, the group is a top 3 carrier from Asia to West Africa (~14% capacity market share from Far East to West Africa) and a leading carrier in the Red Sea Region, with extensive network in Saudi Arabia, Jordan, Egypt, Yemen, Sudan, Djibouti, Ethiopia, Eritrea and Somalia

– The group has a modern fleet with relatively low average age of owned vessels compared to industry, and a strategically optimized mix of chartered and owned vessels to allow for flexibility to adapt in both favourable and adverse market conditions.

– The group operates a vertically integrated business with a diverse, blue chip customer base.

Comments :

PIL is a familiar name if you drive down Singapore’s central business district with their building right in the heart of town.

Being a privately owned company, the public has little access to their financial statements which cannot be found on their website and their only listed subsidiary is Singamas HK (716 HK).

pil structureDiagram : PIL holdings structure.

Investors can rest easy with this list of covenants and negative pledges (and it is mighty heavy) although they are not applicable retrospectively.

Redemption upon Change of Control at the option of the Noteholders
: If at any time the Chang Family (as defined below) ceases to own (directly or indirectly) at any one time (1) (so long as the shares of the Issuer are not listed on the SGX-ST or any other stock exchange) at least 51 per cent. of the Issuer’s issued or fully paid-up capital for the time being, or (2) if the shares of the Issuer are listed on the SGX-ST or such other stock exchange, at least 30 per cent. of the Issuer’s issued or fully paid up capital for the time being, …………….

Negative Pledge : The Issuer has covenanted with the Trustee in the Trust Deed that so long as any of the Notes remains outstanding the Issuer will not create or permit to subsist any mortgage, charge, pledge, lien or other form of encumbrance or security interest (“Security”) upon the whole or any part of its undertakings, assets, property or revenues, present or future, to secure any freely transferable securities (as defined below) or to secure any guarantee of or indemnity in respect of any freely transferable securities, unless, at the same time or prior to such Security being given, the obligations of the Issuer under the Notes and the Trust Deed (i) are secured pari passu therewith, or (ii) have the benefit of such other security, guarantee, indemnity or other arrangement which are not materially prejudicial to the interests of the Noteholders, or as shall be approved by an Extraordinary Resolution (as defined in the Trust Deed) of the Noteholders.
Notwithstanding the foregoing, this Condition shall not apply to any Security created with the prior approval of the Noteholders by way of any Extraordinary Resolution.
For the purposes of this paragraph, “freely transferable securities” means any present or future indebtedness in the form of, or represented by, bonds, debentures, notes or other debt securities which are for the time being, or are capable of being, quoted, listed, ordinarily dealt in or traded on any stock exchange or over the counter or other securities market, having an original
maturity of more than 365 days from its date of issue.

Financial Covenants : The Issuer has further covenanted with the Trustee in the Trust Deed that so long as any of the Notes remains outstanding, it will ensure that:
(i) its Consolidated Total Equity (as defined in the Conditions) shall at all times be at least US$800,000,000; and
(ii) the Consolidated Free Liquid Assets (as defined in the Conditions) of the Group shall at all times be more than US$75,000,000

The company ran into losses last year and 2011 on steady revenues but escalating costs and depressed freight rates. The container business shrinking in importance to their bottom line.

Total assets of US 5.9 bio held against secured loans of USD 2 bio and another US 900 mio of debt.

I suppose we can view NOL as a close comparable with their USD 2.4 bio market cap and USD 9 bio in assets although NOL is more highly geared.

PIL has profit making years to their credit where as we have not seen much result from NOL in the past 3 years.

The coupon of 6.25% for 3 Y suggested is a sweetener along with the huge PB rebate (yes, comparable to Geo Energy), and I am expecting this issue to be benchmark size of SGD 200 mio.

What remains is our view of the container shipping sector and freight rates which seeing some oversupply in certain segments, Somalian pirates excluded. Some freight rates are seeing good recovery this year and PIL should benefit from it.

freight africa to asiaExample chart of West African freight rates to China/Taiwan

As a bond buyer, the risks are 1. company as a going concern (for the next 3 years) and 2. the probability of new debt issues that will undercut the prices of old debt.

Both I see as low and thus PIL should be a sell out and it would not be a bad idea to dump some Swibers and Vallianz for it too.