DARK TUESDAY ALERTS : ANOMALIES IN SGD CORP BONDS – MEDCO AND GITI
Not intending to spread panic on a Dark Tuesday after Black Monday, but I would like to point out to readers some anomalies in SGD corporate bond prices.
S&P Revises PT Energi Mega Outlook To Neg, ‘B’ Rtg Affirmed
“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.””
It has gotten worse this week.
Gajah USD bond price is at new lows.
And GITI TYRES has been inured to the 1. Gajah, 2. the Chinese equity crash as well as 3. the 6 year high in 3 year interest rates !
Verdict : BIG TIME CAUTION !
There is also the case of Tata Steel mentioned last week and China Fishery USD 9.75% 2019 which has crashed to about 60 cts when Pac Andes is still at about 90 cts.
Note that 1-3 year interest rates are at 6 year highs so do not expect bond prices to hold even if banks tell you that their offers are unchanged and Business Times publishes a nerve calming piece like this….
“SINGAPORE bond investors are doing pretty well as prices remain resilient amid the stockmarket rout.
My advice is that if they say “The Markit iBoxx Singapore corporates total return index stood at 113.5925 last Friday, just fractionally off the all time high of 113.6704 reached on Aug 11.”
MAYBE IT IS TIME TO SWITCH OUT OF SINGAPORE CORPORATES WHILE YOU HAVE A CHANCE ?
Hi Ms Ong,
I hope you have been well. hahaha, so much changes now and your portal is well-structured with space for more contents and growth.
The current Giti price and situation is similar as our Hyflux Perp Bonds discussion at the beginning of the year.
http://52.77.202.71/sgd-new-issue-review-hyflux-perp-nc2-high-4
Back then, the Hyflux yield was about 7%pa and lately, the same bond trades a few dollars higher. (yield dropped to appx 5+%)
Giti is a large company with major tire-related business interests in Europe, US, China, Indonesia and Singapore as a HQ and profit centre. In my biased opinion, the offshore risk is minimal. We are dealing with the holding company in this case, and based on their filing with SGX, the holding company’s financial results look respectable.
http://infopub.sgx.com/FileOpen/Giti%20Tire%20Pte%20Ltd%20financial%20statements%20for%20year%20ended%2031%20De%202014.ashx?App=Announcement&FileID=350396
(Let’s not mention the takeover potential in the current dismay market sentiments because we are not equity investors).
Paiseh, I just added Giti in recent weeks. I am not a qualified or trained analyst but I assume the current 7+% yield offers a nice buffer for a large local conglomerate with about 2Y3M to maturity, amidst a strengthening SIBOR/SOR, going forward.
Just chatting, sorry about my differing opinions.
Please take care, KH
Hi KM,
Thanks for sharing your perspective. Cannot disagree with your point of view. I am merely pointing out the relative value differentials for investors out there who may not be aware that Giti’s cash cow subsi is trading at 31-34%. But its is entirely everyone’s prerogative to invest in what they like.
TH, You are the guru 🙂
not sure if you still remember me.
It is inevitable that we do face some price volatility before bond maturity, Eg Sembcorp 5% was once below par. By managing our bond holdings on a less-passive mode, we can lock-in some paper gains to insure against occasional weakness in price. Having said that, I also admit that I am seeking a little capital gain, in addition to the coupons. This is why i switched out of my Hyflux after 8-9 months, for Giti lately.
US rate-hikes projects are expected to slow-down and China, Aust, Canada are likely to drop rates. It is good for bonds but it doesn’t mean that the safest bonds are the best. I read your latest post that OCBC 3.8% fell below 100 on the first day of listing. Maybe the yield is too low for the maturity, in a similar situation as APPLE bonds (below par).
Perhaps, we should all play safe and stick to bonds from reputed issuers with less than 3-years of maturity and a respectable yield, as safety buffer. 🙂
Hey KH,
Of course we remember you. You have been missing for a while ! Welcome back !
Yes. It is good that you are still a staunch supporter of SGD bonds and we need more savvy investors like you around in such times.
Good time to buy short end bonds when interest rates are at 6 year highs ! Should come cheaper !
No lah TH, really very paiseh, i was very disheartened by the articles posted back then. I know you didn’t write them but it completely shocked me. I came to realized that TH was no longer the same portal that I used to know.
I never feedback to you, i just walked away.
Thanks for recalling me. You have a nice day 🙂
This is a great piece, only hope more would read this forum. Investors should do their thorough credit work if they are getting involved in any SGD bonds with above 5% yield handle. These are junk /HY bonds even though 5% doesn’t seem like a lot of yield these days.
Hey KT,
The trouble is that most investors look at the absolute yield without working out the credit spreads. For these 2 cases, I am highlighting a glaring difference in the absolute yield that the naked eye cannot ignore even if one is ignorant of credits.
pardon my ignorance 🙂
Hey,
Not referring to you because you have done your personal analysis already.
The market is made up of different participants and that is important otherwise everyone would think along the same lines.
You are important to maintain diversity.
I am referring to investors who would have made a different decision if they were aware of these developments.
I am ok, don’t worry about me.
Thank you
Of course we won’t. You are an old hand at this !
🙂 Don’t tease me
I am kachang puteh. I lost a fortune in recent years.
Just don’t be like me 🙂
Chat again, take care.
Welcome to the club.
Who would be writing if they have not suffered loss ?
Singapore’s Out-of-Sync Bonds Create a China Fishery Pricing Gap
http://www.bloomberg.com/news/articles/2015-08-26/singapore-s-out-of-sync-bonds-create-a-china-fishery-pricing-gap
For Giti bond investors, Giti Tire Corp is their main business division in China
China Listing Code: 600182.SS
Market Cap: appx 5bio yuan
http://performance.morningstar.com/stock/performance-return.action?t=600182®ion=chn&culture=en-US
2014 Dividend: http://www.reuters.com/finance/stocks/600182.SS/key-developments/article/3228374
2013 Dividend: http://www.reuters.com/finance/stocks/600182.SS/key-developments/article/3014412
70.83% owned by GITI Tire Global Trading Pte Ltd (based on latest 2014 annual report)
GITI Tire Global Trading Pte Ltd is wholly owned by GITI Tire Global Enterprise Pte Ltd
GITI Tire Global Enterprise Pte Ltd is wholly owned by Giti Tire Pte Ltd
PS: Just sharing information for discussion, this is not a recommendation to buy or sell
Good stuff !!
The stock looks yummy. Current price CNY14.99 (12 mth low CNY14.28 27 Aug 15) Historic high CNY34.98 27 May 2015 !
Lost my courage, TH
If I am younger,
I would be scooping up GJTL.JK with the cheap rupiah now at Rp400+ level after reading your post.
So i am now hiding in bonds. hahaha 🙂
Excellent risk management within your comfort zone.
LOL, I missed the boat.
600182.SS is CNY18.80 now
Merry Christmas!