SGD New Issue Review : GITI 3Y 6.125%
NEW ISSUE: GITI TIRE PTE. LTD. SGD 3Y – INITIAL PRICE GUIDANCE
ISSUER: GITI Tire Pte. Ltd.
SERIES: 001
STATUS: Direct, unconditional, unsubordinated and unsecured Notes
RATING: Unrated
FORMAT: Reg S, S274 & 275 of SFA, issuance off S$750 Million Multicurrency Medium Term Note Programme
ISSUE SIZE: TBD
TENOR: 3 years
ISSUE DATE: [●] November 2014
MATURITY DATE: [●] November 2017
INITIAL PRICE GUIDANCE: 6.125% area
REDEMPTION UPON CHANGE OF CONTROL: 101%, in accordance with the Programme
REDEMPTION FOR TAXATION REASONS: Yes, in accordance with the Programme
PAYMENT: Semi-annual, actual/365 (fixed)
DETAILS: SGD250K/ Multicurrency Medium Term Note Programme/Singapore Law/CDP
LISTING: SGX-ST
– New Giti Tire SGD 3yrs announced with strong IOIs received post SG roadshow
– Initial price guidance: 6.125% area
– Pb selling commission: 50cents
– Issue size: TBD
– Timing: This week’s business, as early as today
Comparables:
Tan Chong International 2.8% 01/2017 at 100.60, 2.51%
Tata Motors 4.25% 05/2018 at 100.25, 4.17%
grand china air 6 2017 at 100.35, 5.88%
Credit Highlights:
– GITI Tire is one of the largest tire manufacturers and distributors in the PRC, as well as a major exporter of tires into the international market. The Group sells and distributes its products to replacement market customers and original equipment manufacturer customers in the PRC and over 100 countries globally, including America, Europe, Middle East, Africa and Asia Pacific.
– Leading tire manufacturer and supplier in the PRC. The Group had a market share of 14.4% and 6.4% of the total production volumes of passenger car radial tires (“PCR”) tires and truck and bus radial tire (“TBR”) tires, respectively in the PRC in 2013, making it the largest and fourth largest among the tire manufacturers respectively. The Group’s sale revenues in the PRC have achieved a compound annual growth rate of 20.0% for PCR tires and 18.8% for TBR tires from 2003 to 2013.
– One of the largest tire sales and distribution networks in the PRC, with expanding international sales and distribution capability. The Group’s 64 provincial sales teams in the PRC are supported by 17 logistics centres and 10 regional operation centres across the PRC. The Group’s broad distribution network connects its seven manufacturing plants, which are strategically located along key transportation routes in the PRC, to around 1,600 direct customers, who in turn distribute the Group’s products to approximately 20,000 points of sale nationwide within the PRC. In the export market, GITI Tire has received international endorsement of its brands and product quality, and it serves renowned global OEM customers such as GM, Renault and Fiat. The Group has also secured supply agreements with reputable partners such as the Bridgestone Group, Walmart and Discount Tire.
– Balanced product and market mix. The Group’s diverse product range allows it to temper the impact of demand downturns in any single product. The Group’s sale of PCR tires, TBR tires and bias tires represented 56%, 41% and 3% of the Group’s total sales for the year ended 31 December 2013. The Group also benefits from geographical diversity in its overall sales mix – sales to the domestic PRC market and the export market represented 56% and 44%, respectively, of the Group’s total sales for the year ended 31 December 2013.
– Comprehensive product portfolio with commitment to multi-brand strategy. The Group offered approximately 140 patterns of PCR tires, 220 patterns of TBR tires and 70 patterns of bias tires in full sizes for all types of vehicles, ranging from sedans, multipurpose vehicles, small commercial vehicles, buses, light trucks and aircrafts and other industrial vehicles, comparable to any major global tire manufacturer.
– Competitive cost structure. The Group believes that its large-scale operations in the PRC enable it to benefit from significant economies of scale which in turn permit it to lower operating costs particularly in respect of costs associated with labour, raw materials and facilities.
– Well-developed research and development capabilities. The Group has four research and development centres in United States, Germany, United Kingdom and PRC. It has a team of more than 600 engineers which includes senior advisors who were senior technical staff at leading global tire manaufacturers. The Group uses a number of leading tire-industry technologies and also subjects its products to rigorous voluntary testing and certification as part of the research and development process. The Group has also entered into formal technology and research agreements with leading research institutes and organisations both in the PRC and internationally.
GITI owns 49.7% of Gajah Tunggal, the largest integrated tire manufacturer in Southeast Asia and B2/B+ rated.
Gajah Tunggal USD 7.75% 02/2018 is indicated at 99.50 7.92%.
Gajah Tunggal 7.75% 02/2018 Bond Price
Separately, GITI Tire Ltd had an unrated USD 200 mio bond that was called back at 103.06 on 09/2011. That bond paid a coupon of 12.25% for 5 years.
An infrequent borrower, they are looking to expand their global presence by investing $ 560 mio in a South Carolina manufacturing plant. http://sccommerce.com/news/press-releases/giti-tire-establish-chester-county-manufacturing-plant-create-1700-jobs
So, this is another Indonesian family bond, tracing the ownership roots to the Tuan Sing family. Thus it is reasonable to expect Singapore banks will be fighting for their business.
As a small player in the tyre business, I do not have a strong view on their continued profitability as we should expect some industry consolidation in the months and years ahead.
The Offering Memo did list out some risks to their business which includes, 1. US anti dumping tariffs in the past and potentially in 2015
$2 Billion in Chinese Tires Again Face Specter of U.S.
Oct 16, 2014
China-manufactured car and truck tires may again face U.S. anti-dumping and anti-subsidy tariffs in 2015, three years after U.S. punitive tariffs on the same tire imports expired. The United Steelworkers union petitioned the U.S. to levy tariffs of as high as 88% to offset price advantages on tire imports worth $2 billion in 2013. The U.S. is expected to announce the results of its illegal subsidy probe in November and its dumping investigation in January.
2. European products standards
3. Indonesia investigation on alleged price fixing activities that commenced in Oct 2014 against Gajah Tunggal.
And given that Gajah Tunggal is an integral part of the group’s finances, I would not price the bond any less than a token discount to Gajah Tunggal’s yield.
On the contrary, the group’s GITI Tire A shares are trading at a historic high.
GITI TIRES A SHARES
I cannot say I prefer this bond over Grand China Air although it looks better than the recent Swiber and Tee Land. And 6% does not do justice to the risks.
I never liked tires much and if anyone remembers the Bridgestone/Firestone scandal in the 80’s that rocked the markets.
Today we have Takata Corp, a Japanese air bag maker, under US criminal investigation. http://www.bloomberg.com/news/2014-11-10/takata-falls-after-u-s-senators-call-for-criminal-probe.html
Then again, being based in China has its advantages too.
Good luck !
Very good sharing from TH about Gajah Tunggal and Giti’s past bond issues. Indonesia and India are two countries under a refreshing new leadership in 2014.
I like the tenure and they got to give >5%, being a private company like Tata Singapore, no matter how good the underlying financial covenants are.
The coupon of Tata Sg’s NC5 was 0.35% below their initial guidance. Now, it will be interesting to see if Giti 3Y sets their final price with a spread from initial guidance.
The success of this issue depends on the loan ratio, I guess.
If its more than 50%, people will bite.
Sorry typo…..
The coupon of Tata Sg’s NC5 was 0.35% below their initial guidance. Now, it will be interesting to see if Giti 3Y sets their final price with a similiar spread from initial guidance.
KH..why will it be interesting to see if they can tighten from initial guidance? it only means less money left on the table for investors like us, not about how zai/gd they are.
Most of the time, the issuer has a target in mind and they will offer a higher than targetted rate in the first round to test demand. in this case, if they print wider than 5.75-5.85 aka weak demand.. it will be better to yank your order.
Thanks junkbond,
I do agree with you on this. Tata Singapore was a good example; yield reduced by 0.35% from guidance (slightly more than norm) = demand during placement was good = trade at 102 (2% premium)
I wrote that because I hardly offload my bonds for capital gains before maturity.
Ok, Tata is a NC5 perpetual while Giti is plain vanilla 3Y unsubordinated. Let’s do a comparison: Hainan (Grand China Air) 3Y 6% vs Giti 3Y (5.75-6.15%), which will you prefer?
S$ GITI TIRE PTE. LTD. 3Y
– Books approaching S$200mm
– Issue size: Capped at S$100mm
– Price guidance remains at 6.125% area
my brother.. quite easy. it will be grand china. btw.. giti 6% max 100m only 2x covered. aka shag. (n therefore did not close inside 6%)
Yes TH, I agree with the role of financing on placement demand.
I prefer yields that are less distorted by crazy LTVs.
Thanks Junkbond, let’s compare the price of Grand China and Giti when both start to clock accrued interests.
Gentlemen, you have a good evening.
Hearing that GITI is getting between 55-75% leverage.
That is pretty high.
Ya, if 50%, it is really too little
Coupon: 6%
Same as grand china
http://www.reuters.com/article/2014/11/10/idUSL3N0T066S20141110
**GITI TIRE PTE. LTD. SGD 3Y – STATS**
Books approximately S$200m from 40 accounts
By Investor Type:
Private Banks 47%
Fund Managers/ Banks 53%
By Geography:
SG 70%
HK and others 30%
GITI TIRE PTE LTD 6% 11/2017 opening price 99.50/99.75 (6.19/6.10%)
yawn.. what did i say ..yank ur orders!!!
Sounds like you are not a friend of the family.
Still above water. Cost 99.50
Please chill junk bond. This is respectable company and it’s resale price will be supported by 6% yield vs 6% from other riskier sector, eg. O&G.
Sembcorp Perp used to trade at 99.5-99.7 level for a long time after the initial placement and surged slowly to 105 before settling at 103+ lately.
Haha. Now this sounds like a friend of the family.
I hope you will say the same for Fraser Centrepoint too… FCL 3.95% 10/2021 is offered at 98.75 today (4.16%).
sembcorp :99.50-103+ =3.5pt in 9 months?..how has the rest of the perps move within the same period of time, any idea? 5-7?
actually..i dont think this giti is that bad.. just saying from the way the leads tighten the price and book size on t+0 could sort of tell the performance of the bond t+1.
I don’t think there is any other market in the world GITI can raise money at 6% SGD rates or equivalent in another currency.
hahaha, ya 6% in SGD will swap to appx 10% if they issue the same tenor in IDR and there’s also withholding tax on IDR coupon payouts if I am not mistaken. I will also not look at it if it is not in SG because I have no overseas custodian accounts.
Thanks for taking time off to warn about FCL, TH. I seldom offload for capital gains and I don’t have access to terminal prices.
Dear TH, you are the guru. KH is just kachang putek. For FCL, i did take up the recent 4.88% perp. I just nibble a bit there and there to diversify (recent buys FCL, GrandChina, Giti).
Look Sir, even FEH is included in this list because their RMs/Remisiers marketed it to clients. (recently Cordlife)
http://www.maybank-ke.com.sg/docs/Fixed_Income_Securities_at_188.pdf
Your FCL3.95 and my FCL4.88 will truly surge when it is included into more of such lists for resale bonds financing.
PS: This is a casual discussion; not meant to encourage bond financing for any of the above mentioned. LOL
I wish I could be guru sometimes.
You have chosen a nice set of names. Yes, marketing helps alot because the market is really not transparent.
I wish you luck with the FCL but like I said before, it is not the same Centrepoint that we know.
Market is around 99.30 on the bid now.
Heard low was 99.60 which is still in the money.
Sighz, that is getting embarrassing.
I don’t think you should feel that way. Because in 6 months time, you will be sitting on 103 (that’s how investors like to think).
Think about me, sitting here and sticking my neck out with each call and looking like a fool for no returns.
I have a better reason to be embarrassed.
Don’t say that TH, I think u are a rich guy 🙂
That is a happy thought.
GITI closing price 99.40/99.75.
Hello TH,
I’m thinking whether Perisai 6.875% bonds (3rd Oct 2016) is still a good buy after deep correction in oil prices.
Ask for today’s prices at 98.55/99.15 (>7% yield).
The relative short tenor of less than 2 years looks attractive.
Do care to share your opinion.
Thank you very much in advance.
Offshore will be the worst hit for O&G.
It’s hard to ascertain value right now because there is little out there and banks are trying hard to unload.
Perisai stock price down 58% from year high to current low of 0.72 (close 0.735).
Not a bad company too and I daresay it looks a lot more attractive next to our Singapore offerings in Ezra (a major shareholder) and Swiber etc.
Hello TH,
Thank you very much for your insight. It helps to get another perspective.
I think there is no easy answer in current investment climate.
I cannot be seen giving financial advice 😉
Reform hopes send Indonesian bond yields to year-low
http://www.ft.com/intl/cms/s/0/f2dc5226-7601-11e4-9761-00144feabdc0.html