SGD New Issue Review : Pacific Andes Resources Development 3Y 8.75%

PACIFIC ANDES RESOURCES DEVELOPMENT SGD 3YRS

– New Pacific Andes Resources Development SGD 3yrs announced. Deal is anchored.
– Initial price guidance: 8.75% area

– Comps:
Midas Holdings 5.75 2017 – 100.20, 5.67%
Cenchi 6.5 2017 – 101.25, 6%

Credit Highlights:
– Pacific Andes Resources Development (PARD) is principally involved in the development, marketing and distribution of fish and fishery products. PARD integrates the entire supply chain, sourcing frozen seafood products from oceans all around the world. Besides providing a full range of at-sea transportation and logistical services to fishing companies, through their subsidiaries China Fishery Group Limited and Copeinca, PARD also operate one of the world’s most sizeable fishing fleets and fishmeal processing facilities in some of the world’s most important fishing grounds.
– PARD is one of the world’s largest fishing companies with substantial presence in the PRC and diversified customer base abroad. Being one of the largest frozen fish supplier to China, PARD is well positioned to leverage on China’s growing fish consumption.
– PARD also has a strong presence in the fishmeal processing sector in Peru and access to controlled fishing grounds with abundant fish.

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I suspect the above credit highlights are slightly misleading and not referring directly to Pacific Andes Resources but the operations of the entire group including China Fishery and Pacific Andes International. 

Still, this is one of the highest coupons we are seeing in a year. We only had 2 issues last year that gave 8.5% and they were Enviro-Hub 2 years and Miclyn Express Offshore, also 3 years.

Rickmers gave us 8.45% for a 3 year bond earlier this year.

Back to Pacific Andes Resources. Together with China Fishery, both companies are Singapore listed subsidiaries of Pacific Andes International Holding (1174 HK) which is listed in HK.

All 3 are seeing floundering share prices as profits at the parent dived 49% for the first half of their fiscal year that ended in Mar 2014.

The entire group is undergoing a capital and debt rationalisation exercise that started in Mar this year, after a series of financial and business set backs, hit by ethical fishing concerns and fishing rights, weather concerns with El Nino striking at the core of their fishing operations in Peru, increasing competition from other fish suppliers and funding issues that affected China Fishery on their takeover of Copeinca ASA last year. http://www.undercurrentnews.com/2014/07/07/pacific-andes-backed-us-processors-profit-slides-20/

Thus we are seeing divestments of assets in the backdrop of lowered profits, which are nonetheless, still profits.

China Fishery, a fellow subsidiary is rated B2 (Stable) by Moodys in Apr this year although S&P has not removed their negative watch issued in May 2013 on their higher B+ rating. Fitch has the company at BB- and negative watch as well.

China Fishery has an outstanding bond issued in Jul 2012 – CFG Investment USD 9.75% 07/2019 for USD 300 mio.

The bond has 5 years left to run and is trading at 97.75/98.75 (10.335/10.073%), or a credit premium of 8.15%.

My initial reaction was one of surprise that the coupon Pac Andes Res is on the high side, given that many a lesser company has been issuing at ridiculously low levels and this is a more established company that can count the Norwegian oil fund as a small investor.

8.75% delivers a credit premium of 7.7% over the 3 year interest rate which is fair value and just 0.45% shy of CFG’s 8.15% 5 year premium.

As a credit, Pac Ande Res  is not as highly leveraged as its parent, Pacific Andes Intl. The company is running on 2.7 times financial leverage and 100% debt/equity compared to its parent running at 4.5 times fin lev and 245% debt/equity.

The group has resolved to bring their leverage down which is assuring compared to other bond issuing corporates.

It is a largely family owned business and a household name in the local stock market that has been around for a while and I daresay we will see a huge take up of this bond in the private banking space, especially with the enticing PB rebate.

Good luck !