SGD BOND ALERT : SG LOVES GITI TIRES AND TATA STEEL BONDS !
SINGAPORE LOVES GITI TIRES BONDS !
It started when I listed the bottom 5 bonds of last week on the forum for a reader and I realised that Gajah Tunggal (B2/B) USD 7.75% 02/2018 has taken a severe beating since its S&P downgrade on 4 Aug to B from B+.
Dealing at 67.5/69 (26.52/25.41 %) today … we would expect the parent, GITI Tires (49.5% stake), to be suffering as well, wouldn’t we ?
Not at all in sunny Singapore !
GITI TIRES (unrated) SGD 6% 11/2017 is still dealing at 95.50/97.00 (8.23/7.47%) !!
GITI SGD bond was priced sometime in Nov last year at 6% vs an indicative coupon level of 6.125%. At that time, Gajah Tunggal was still a healthy 99.5 on its USD bond price.
What I said then : ” 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.” https://tradehaven.net/sgd-new-issue-review-giti-3y-6-125/
We are seeing a reversal of fortunes here !
Let’s take a look at the situation graphically.
The key shareholders for Gajah Tunggal which is the largest integrated tire manufacturer in Southeast Asia include Denham Pte Ltd., a subsidiary of Giti Tire (not rated), a Chinese tire manufacturer, with 49.5% stake and Compagnie Financiere Michelin (A3 stable), which holds a 10% interest.
Moody’s conditions for a downgrade :
Downward rating pressure may arise if a) Gajah Tunggal is unable to defend its leading domestic market position, b) Gajah Tunggal’s financial profile deteriorates due to significant pressure in its profit margins, or c) expands its business through aggressive debt-funded acquisitions or capital expenditures such that debt/EBITDA exceeds 5x on a sustained basis. https://www.moodys.com/research/Moodys-Gajah-Tunggal-2014-results-are-mixed-challenges-expected-to–PR_322475
SINGAPORE LOVES TATA STEEL BONDS !
While conversing with a friend about Giti yesterday, he told me to take a look at the love affair with Tata SGD and so I did.
Tata Steel (ABJA Investment) SGD 4.95% 05/2023 is trading at 96/96.50 ( 5.59/5.51%).
And Tata Steel USD 5.95% 07/2024 is trading at 95.50/96.25 (6.62/6.51%).
Does not sound like much ?
Till you realise that Tata Steel USD bond has … errrr… 10% in price terms since its peak of 106.80 in April this year.
Tata SGD 8 year credit premium is 2.88% vs USD 9 year at 4.2%. That is a difference of 1.32% ! And we know that the USD paper is probably more accurate in price because the Tata EUR 5Y CDS levels at going above 4%.
For those who attended my seminar and learnt a little about value investing, it is time to take a look at this development.
Why does Singapore like Tata and Giti to price them above the clouds ?