Bonds In Conversation : Guerrilla Warfare
Heavy week in the bond markets with fates hanging on the US NFP tonight after a mostly undecipherable FOMC minutes on Thursday morning.
Some major bonds have missed payments in the first week of the year starting with China’s Kaisa which has 30 days to make good as Moody’s cut their ratings again to Caa3. Brazil’s OAS and Petrobras are also in trouble, along with Venezuela, Ukraine and now Soros says he would not be surprised if Russia went down. Dubai developer Limitless LLC and Malaysia’s almost quasi sovereign fund 1MDB have both missed payment deadlines as well.
That makes us wonder where all the money has gone, really ?
Yet investors should not worry because we have only been getting good stuff since the start of the year, starting with Philippines raising US$ 2 bio for 25 years at 3.95% ! Turkey paid 4.875% for US$ 3 bio for 28 years and and we just had Indonesia paying 4.125% and 5.125% for US$ 4 bio in 10 years and 30 years respectively.
And today, Kaisa is on a roll, with private banks leading the charge, bidding for all issues across the curve at flat cash prices of 31 – 33 cts. Good luck, folks !
Ukraine USD bonds also rose over 10% overnight after EU pledged more aid. Hip, hip, hooray.
With 10Y US yields at an 18 month low, JGB 5 year going at zero and even Australia breaking new lows in their yields, I do not think it is an even playing field anymore.
Because at 0%, we know that people are still making money while retail players can scarcely afford that, which has always been the way except that it has gotten much worse now.
Banks make money because they are gauged on cost of capital, sovereign wealth funds have their own agenda, central banks do not care and fund managers all play off a different benchmark that is not absolute return, unlike my personal need for absolute returns.
Do I really want to be investing in this field ? Or should I be adopting guerrilla warfare and put a bid on for Kaisa or Greece ?
************************
In Singapore, we have only a single issue out of Fragrance Group only managing SG$ 75 mio for 2 years at 3.75% (current market 99.75/100.05).
There is nothing much to do to combat the rising short term rates which will dent finances for a while because they are unlikely to crash from current levels back to our comfort zones of 0.25%. When will banks start paying higher deposit rates ?
To add to our disgust, SGD government bonds have delivered up to 5% returns since 2 Jan this year.
Del Monte is arranging investor meetings but is likely to issue in USD and we have Religare coming up.
Religare Health Trust Trustee Manager Pte. Ltd (in its capacity as trustee-manager of Religare Health Trust) has mandated DBS Bank Ltd., Deutsche Bank AG, Singapore Branch, Religare Capital Markets (Singapore) Pte Limited, and Standard Chartered Bank to arrange a series of fixed income investor meetings in Singapore on January 12, 2015. Religare Health Trust is a business trust with a portfolio comprising healthcare assets in India, and is listed on the Main Board of the SGX-ST. A S$ Reg S senior unsecured notes offering under the recently established S$500 million Multicurrency Medium Term Note Programme may follow, subject to market conditions.
The irony is in the words of DBS at a private banking seminar, as reported in the BT, cautioning over high yield corporate bonds as risks of defaults could rise, notwithstanding that DBS has brought out quite a lot of that stuff last year. http://www.businesstimes.com.sg/government-economy/restructuring-yoke-to-weigh-on-singapore-this-year-dbs-ceo
Not referring to Singapore names, I suppose, because unbeknownst to many of us, Vallianz did a small private placement for USD 22.5 mio (at issue price unknown), a senior perp probably at 4% with a call in 01/2018 at 100. Interesting. For all we know, the issue price could well have been 90 cts.
Cracks continue to show as UOB sues property giant, Lippo Group, after suffering 37 out of 38 defaults in yet another Sentosa unit. Tut, tut, tut, UOB !! Something wrong with your in-house systems ? http://www.singaporelawwatch.sg/slw/headlinesnews/55272-uob-sues-lippo-group-subsidiary-and-7-others.html
I think we are in for interesting times and I stick to my call of preaching patience for investors and active guerrilla warfare portfolio management for the rest. https://tradehaven.net/market/2015-singapore-corporate-bond-trends-preaching-patience/
And it does look like Bill Gross has nothing to lose this time when he predicts that 2015 will be awful. http://www.bloomberg.com/news/2015-01-06/bill-gross-calls-it-2015-is-going-to-be-terrible.html
Bill Gross, bond king, ousted executive, self-styled poet of the markets, has a bold, depressing prediction for 2015, and he’s not couching it in any of his usual metaphor: “The good times are over,” he wrote in his January investment outlook note. By the end of 2015, he goes on, “there will be minus signs in front of returns for many asset classes.”
Good luck !
USD Asians Indicative Prices
SGD 2014 Corporate Bonds (Indicative prices)
SGD 2013 Corporate Bonds (indicative prices)
NEW YORK (Standard & Poor’s) Jan. 8, 2015–The first week of 2015 has seen three global corporate defaults, all based in emerging markets, said an article published today by Standard & Poor’s Global Fixed Income Research, titled “Global Corporate Default Tally Starts With Three Defaults In The First Week Of 2015.” The first default, China-based real estate developer Kaisa Group Holdings Ltd., occurred after Standard & Poor’s Ratings Services lowered its long-term corporate credit rating on the firm to ‘SD’ from ‘BB-‘ on Jan. 5, 2015, following the company’s default on its HK$400 million offshore term loan. We believe this default could lead to an acceleration of debt repayment on all of Kaisa’s other debt instruments, which have cross-default clauses. We classify this default as a U.S.-based default in this report’s default statistics since the company is incorporated in the Cayman Islands, a U.S. tax haven.
The second default occurred on Jan. 7, 2015, when Standard & Poor’s lowered its corporate credit rating on Brazilian engineering and construction and infrastructure investment group OAS S.A. to ‘D’ from ‘CC’ after the company failed to make a principal and interest payment on its ninth debenture issuance. We don’t expect OAS to make the missed interest payment on the 2021 notes within the 30-day cure period and believe the company is likely to face a general default.
The last default was confidential.
This was out yesterday…..more onshore defaults looming?
China Bans Individual Investors From Investing in Private Bonds
By Bloomberg News
(Bloomberg) — China banned individual investors from investing in bonds issued by small and medium-sized enterprises through private placement as the world’s second-biggest economy faces rising corporate default risks.
Shanghai Stock Exchange and Shenzhen Stock Exchange also
prohibited money from financial products sold to individual
investors and not managed by them from being invested in private SME notes, according to bourse statements. In addition, the exchanges banned financial products or limited partnership
companies set up solely to buy one private bond.
The new rule “will no doubt make it more difficult for
smaller companies to issue private bonds,” Li Ning, a bond
analyst at Haitong Securities Co., the nation’s second-biggest
brokerage, wrote in a report today. “Private bond redemptions
are rising every year. We should watch out for their default
risks.”
Premier Li Keqiang, who vowed to prevent systemic financial
risks, is seeking to balance steps to support the economy with
efforts to curb corporate borrowings. Investor concern that
defaults could spread has risen since Kaisa Group Holdings Ltd.,
a property developer based in the southern city of Shenzhen,
missed a loan payment on Dec. 31.
The new regulation also requires underwriters to check the
quality and operations of guarantor companies, as well as to
communicate with the appropriate regulators, according to the
statements. The Shenzhen rules took effect from Dec. 31 and the Shanghai rules will start today.
More Defaults
The China Securities Regulatory Commission started a
private bond market for smaller companies in 2012, where bonds are issued via private placement and little information is
available to outsiders.
Shi Lei, head of fixed income research at Ping An Securities Co., said Dec. 23 defaults in the private bond market may increase this year. That’s because Chinese companies’ credit profiles will worsen even after the central bank cut interest rates for the first time last month, he said.
The Shenzhen exchange ban applies to all individuals except
board members, supervisors, senior executives and shareholders owning more than 5 percent of the company. The rule in Shanghai applies to all individuals.
It is part of their shadow banking clean up exercise after all those trust products failed.
Private securities cannot be completely banned because it is the prerogative of the investor to lend to any company they choose to but what they are doing is to prevent the product from being offered to the general public or traded in a bond format.
Quote: “Cheung Kong is one of the safest SGD perp around with lots of ready cash; and their ratings and rated bonds will be crashing like mad if they don’t redeem on first-call. However, Cheung Kong perpholders suffered like crazy because of their refusal to include to step-up.”
Big news TH,
http://www.bloomberg.com/news/2015-01-09/cheung-kong-to-buy-out-hutchison-whampoa-spin-off-property-arm.html
Does this means a “Change of Control Redemption” eventually?
Nope. Don’t see any such clause in the prospectus.
Thank you TH, yes, i couldn’t find too.
You have a good weekend
Just noticed your kind donation !
Thanks heaps !
Just my second donation so far, not worth a mention. In the past few months, I also used up quite a bit of your resources here when I posted quite some rubbish when i was bored.
Besides, you responsed to my last question in early hours of the day. LOL, better than my RM lor. So my donation is kachang puteh as compared to your efforts and passions.
Thanks for everything.
You are generous ! Thanks again.
Explanation for the Vallianz bond – left pocket to right pocket.
Singapore-listed marine support services provider Vallianz Holdings has issued senior perpetual securities of US$22.5m to fund recent acquisitions.
The company listed the perpetual, priced to yield 4%, on the Singapore Exchange on January 6.
Parent Swiber Holdings fully took up the notes as part payment for the USD36.1m acquisitions of a 49% stake in PT Swiber Berjaya (PTSB) and a 100% stake in Newcruz International.
More on Fragrance and Aspial brothers.
Aspial, Fragrance Offers S$0.3-S$0.33/Shr in Cash for LCD Global
Cheung Kong 5.125 massive surge today 🙂
Kaisa Said to Be Probed on Ties to Official Under Investigation
By Bloomberg News
(Bloomberg) — Co. being investigated by Chinese govt about links to senior official in Shenzhen city under a probe, according to two people familiar with the matter.
Co. had dealings with Jiang Zunyu, under investigation since October, who served as party chief of Longgang district, said people who asked not to be named because they aren’t authorized to speak publicly
Some approval procedures for Kaisa projects in Longgang suspended last month: co. filings
Kaisa’s media relations department didn’t respond to calls and e-mailed questions about the Jiang investigation
An employee of the Shenzhen city government’s media department referred questions to its foreign media office, which didn’t answer three phone calls
NOTE: Some 75,000 officials have been investigated by the Central Commission for Discipline Inspection since President Xi Jinping took power in 2012
NOTE: Kaisa Dollar Bonds Rally as Developer Gets Loan Default Waiver