DARK TUESDAY ALERTS : ANOMALIES IN SGD CORP BONDS – MEDCO AND GITI

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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

“EMP is facing sizable debt maturities through 2016 and its internal cash flows and cash balance are unlikely to be sufficient to meet repayments in our base case.
A lack of timely refinancing or roll-over of maturing debts will reduce the company’s liquidity.
We are revising our rating outlook on the Indonesia-based exploration and production company to negative from stable. At the same time, we are affirming our ‘B’ long-term corporate credit rating on EMP. In line with the outlook revision, we are lowering our long-term ASEAN regional scale rating on EMP to ‘axB+’ from ‘axBB-‘.
— The negative outlook reflects our view of the refinancing risk associated with the loans maturing over the next four to 12 months.”
PT ENERGI has a 3Y SGD 100 mio bond issue brought out in May this year by DBS.
MEDCO 5.9% 05/2018 last seen at the 99 ct level and apparently still marked there.
Given that even quasi govt names like Pertamina Persero (Baa3/BB+/BBB-) sold off to a large extent in the past 2 weeks and is about 6.7% lower in price terms since PT Energi SGD bond was issued in May, I would expect that the SGD bond issue to, at least, reflect similar weakness.
DARK TUESDAY : ANOMALIES IN SGD CORP BONDS
This is in addition to the fact that 3 year SGD interest rates are at 6 year highs which should also dampen bond prices.
Verdict : BIG TIME CAUTION ! THERE IS NO WAY THAT MEDCO IS AT 99 CTS or EVEN CLOSE.
MAY 2015 GAJAH TUNGGAL PLACED ON CREDIT WATCH NEGATIVE BY S&P

“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.

DARK TUESDAY : ANOMALIES IN SGD CORP BONDS 1

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.

“In choppy markets, bonds are more defensive,” said Clifford Lee, DBS Bank head of fixed income.” http://www.businesstimes.com.sg/companies-markets/singapore-bond-market-resilient-amid-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 ?

Category : Rates/Bonds
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