For real-time updates, do join our:
- Telegram Group: The InvestQuest
- Whatsapp Broadcast: Just send “Hello IQ” to +65 8840 2520
Difficulty Level: Moderate
Due to minimum purchase size of S$250k for most SGD-denominated bonds, this article may be most relevant for Priority/Private Bank clients.
1) S$15bn of SGD bonds maturing in 2020, 50% higher notional than in 2019
2) Sectors of concern: Real Estate, Transport & Logistics and Airlines
Companies in these industries typically take on higher debt loads and we do see a number of bonds from these sectors maturing this year.
3) We’ve included a list of riskier bond issues to watch out for
What’s been happening in global markets year-to-date?
We’ve generally started seeing margin calls this quarter… 1Q2020 was a really challenging quarter for global investors, where we did see a number of margin calls occurring within the Private Wealth space in Singapore in March. While it might be easy to point fingers at the traditionally more volatile equity market with the S&P 500 Index falling as much as 35% from it’s peak in February, my sense is that most margin calls were a result of leveraged bond investors.
Equity investors are okay so-far, relative to the start of 2019. The reason I say that is because, year-to-date till the 23rd March low of the S&P 500 Index, the Index was down 30%, that is after boasting a positive 32% return for calendar year 2019. So if you had taken no action since start of 2019, your equity market position would have been just down marginally.
On the other hand, leveraged bond investors face a different story. The total return for High Yield Bonds since start of 2019 is down by just over 10% (using the more liquid US High Yield Bond ETFs for reference; HYG US and JNK US). From their February peaks in 2020, these High Yield Bond ETFs had declined by more than 20%. Investment grade corporate bonds were not spared either (using LQD US as reference), also down more than 20% at one point from their February peak.
Banks are taking precautions too. To make matters worse for leveraged bond holders, banks also started cutting lending values to bonds that were deemed more risky, hastening the speed of margin calls.
Here’s an update on the SGD Corporate Bonds
On SGD bonds maturing this year… Given this backdrop, I thought it would be a good time to give an update of the 2020 SGD Bond maturity calendar and to highlight some of the bonds that are deemed riskier based on implied credit spreads. Several major mainstream news providers have written on this topic previously (links below) and I hope to build on this.
Worryingly larger notional of bonds maturing in 2020. We do see a much larger notional of SGD bonds maturing this year at S$15bn, approx 50% higher relative to prior and the next few years (stacked bar chart below). This worries me a bit, particularly when corporate refinancings this year is not going to be as easy with the economy in a pinch. Banks/Capital Markets might be less willing to lend to corporates that face higher credit and liquidity concerns and refinanced debt is also going to cost more, due to wider credit spreads broadly.
Sectors of concern. The sectors I would be most concerned about would be Real Estate, Transport & Logistics and Airlines, all of which typically take on higher debt loads and we do see a number of bonds from these sectors maturing this year.
Some bond issues worth monitoring
Here are the riskier bond issues to watch. In the below table, I have included bond issuers that had been highlighted by the earlier mentioned Bloomberg article published in 2019, as well as bonds that are currently trading at or above 10% credit spreads which indicates some corporate stress. Do note that prices used are indicative in nature due to the OTC nature of the bond market.
Source: Bloomberg, retrieved 9 Apr 2020
Pacific Radiance 4.3% 2020: Defaulted on bond coupon payment on 29 August 2018, currently undergoing debt restructuring. Details here.
Oxley 5.15% 2020: Less credit/liquidity concern now after the sale of Chevron House to AEW for S$1.025bn in 2019 (details here). Had S$324mm on balance sheet on 31 Dec 2019. In Feb 2020, successfully raised S$75mm from a bond issue maturing Feb 2023 with 6.5% coupon.
Banyan Tree 4.85% 2020: Not concerned since overall credit metrics have been manageable and stable with total debt/assets now at 34%. Main issue now will be on short-term profitability given sector specific headwinds. As at end December 2019, cash and cash equivalents were at $130.8 million, from $206.2 million in FY2018. No dividend was declared for the full year, as opposed to a final dividend of 1.05 cents a year ago. (latest FY2019 earnings details from The Edge)
Lippo Malls 4.1% 2020: On 6th April, Fitch revised the outlook on Lippo Malls Indonesia Retail Trust from “Stable” to “Negative” but reaffirmed the existing BB credit rating. The Negative Outlook reflects Fitch’s expectation that the pandemic will dampen operating earnings, with the average occupancy rate dropping to around 50% in 2020. LMIRT reported an ending cash balance of SGD110 million at end-2019, which is sufficient to cover SGD75 million of bonds maturing in June 2020. We assume that LMIRT will defer the coupon on its perpetual securities and dividend distribution to conserve cash. (full details from Fitch here)
Perrennial 3.85% 2020: On 3rd April, Perennial reported that it had secured a loan facility of S$250mm to partially fund the repayment of its 4.55% S$280mm retail bonds maturing 29 April 2020. (details from Business Times). With S$120mm cash on its balance sheet on 31 December 2019, they will be looking to refinance the S$100mm 3.85% July maturing bond next. (latest FY2019 earnings details from Business Times)
Century Sunshine 7% 2020: Listed on the HK Stock Exchange under ticker 509 HK, the company is in the organic fertiliser and magnesium products business in China. It is a small cap stock with market cap of approx HDK 728mm and as of 31 December 2019, a cash position of HKD 823mm.
Aspial 5.25% 2020: Aspial is the holding company behind recognizable brands like Lee Hwa Jewellery, Goldheart Jewellery and Maxi-Cash. Debt load for the company is on the higher end, with net debt of S$1bn with market cap of S$271mm. As of 31 December 2019, the company had cash of S$156mm. More recently on 9th March 2020, the company managed to raise S$50mm via a bond issue maturing Mar-2023 with 6.5% coupon (details from Business Times)
NOL 4.65 2020: In 2015, Temasek had sold its 67% stake in NOL to the now 4th largest provider of container shipping services CMA CGM, a French private company. On 4th February 2020, Moody’s changed the outlook on NOL’s parent CMA CGM from “Stable” to “Negative” but reaffirmed the B2 issuer rating and Caa1 credit rating for the company’s senior unsecured debt (details from Moody’s here). The silver lining is that on 26 March 2020, the company announced the successful sale of 8 port terminals to shore up its balance sheet (details from CMA CGM’s corporate website). Overall, I’m still worried on the sector given falling global trade volumes amid Covid-19 and CMA CGM’s company specific debt load, as net debt on 31 December 2019 stood at US$17.8bn while total assets (excluding goodwill + intangible assets) stood at US$27.3bn (FY2019 Annual Report details).
Vibrant Group 7.5% 2020: The issuer is listed on SGX with a current market cap of S$65mm. As of 31 January 2020, the company had total debt of S$278mm and cash of S$106mm, so liquidity concerns are not immediate.
Pacific International Lines 8.5% 2020: Issuer is a private company offering marine support services. Not much newsflow around this company this year with the exception of some asset sales to raise cash (details here).
Be the first to comment