Cliffhanger Bond Series : Trikomsel Bond Restructuring … Updated

Cliffhanger Bond Series : Trikomsel Bond Restructuring 1

 

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Early days yet since the shocking announcement that one of private banking’s favourite bonds, Trikomsel SGD, is considering a debt restructure and is considering hiring law firm Ashurst LLP after naming FTI Consulting as their restructuring adviser.

Restructuring debt is usually interpreted as a form of default which means that equity holders will be almost certainly wiped out and yet it could have a broader meaning to smaller matters such as reducing coupons and extending maturity dates.

Trikomsel bonds have financial covenants limiting their FCCR (fixed charge coverage ratio) to be limited to under 2.0. FCCR = (EBIT + FC) / (FC + interest)

Surely those covenants would have done their job in keeping their expenses (debt) in check unless we are talking about a sudden fall in their EBIT which does not warrant bankruptcy of any sort ?

Facts :

Aug 2014
Catalist listed company Polaris buys stake in PT Trikomsel for S$ 290.5 mio from Standard Chartered and JPMIB.
Polaris provides telecommunication services and has a market cap of S$255mio and owns an estimated 45% of the company.

Mar 2015
Trikomsel and Singapore Post agree to form a joint venture in Indonesia with SingPost taking up a 33% stake for about US$1.1 mio.

April 2015
Softbank, Japanese mobile giant, acquires 19.9% of PT Trikomsel for US$ 120 mio.

The period between April and October was silent until the restructuring announcement that comes unexpected for most investors as Trikomsel bonds actively changed hands between private banking customers and reporters focused on the more basket cases of Swiber, Otto Marine, Ezra, Pac Andes/China Fishery, Noble and gang.

Then came the stunner with no warning that the company intended to restructure its debt and bonds are now indicating 50 cts (screen prices indicate higher) and margin calls are streaming in as we understand that leverage of up to 70% have been granted for some of those debt purchases.

Clients are unhappy and we have stories of how some “preferred” clients have been tipped off to sell and their holdings been distributed to unwary small clients because not many banks have lines to hold their paper.

Hold on …..

  1. restructuring means equity holders would have to agree to be wiped out too !
  2. what does Softbank and Stanchart have to say ?
  3. is the company using the fact that the bondholders are retail buyers to bully them for the benefit of shareholders ?
  4. why didn’t Muddy Waters or Iceberg and the other financial vigilantes spot this ?

Bondholders have a right to stand up and demand forced liquidation which can punish shareholders first and that is something bondholders will have to realise except that 90% of Trikomsel bonds are estimated to be in the hands of passive retail buyers who do not usually take up the cudgels for their cause like activist investors typically do.

Trikomsel Singapore, a wholly owned subsidiary  has a paid up capital of S$1.00.

Will we wait for 26 October to find out during the bond investor meeting ?

What would be ideal now is that we have an activist hedge fund step in to swoop bonds up at cheap prices to get themselves into that 26 Oct meeting but unfortunately Singapore does not have too many of those or any at all given that Singapore is a leading arbitration centre and not a litigation centre which is good news for issuers. The bonds are governed by English law.

We can only hope that bond investors would unite to form a majority to exert their rights on the trustee and wait for the 26th to see what everyone has to say.