Olam International

[greypiggi]

While I am no bond expert, investing into Olam now is as good as punting.
To me, we choose a bond due to its safe nature and if there's a risk, however minimal, we should avoid at all cost.

I agree but if i did not already own OLAM bond i will take the punt. But i will classify this under my speculative portfolio and not my bond portfolio. So instead of buying equities to trade, i will buy use 50K to buy the 2013 Sep bond yielding 2.5% which current YTM should be about 3.5% since bond price is about 99. Borrow the other 200K at 0.8% interest. Do the math, effective yield on my 50K is (6250+2500-1600-500)/50000=13.3% assuming 1 full year and 0.2% commission when buying. Yield on this play is 13.3 which meets my speculative targets.

Risk? default is the main one but Temasek and owner already committ to raise 750M which will pay off all 2013 bond holders. Interest rate almost zero chance to spike up in 2013.

The only reason i am not doing this is that i own some olam bonds and have a rule to not have more then 2.5% of asset in any one instrument.

[Temperament]

While I am no bond expert, investing into Olam now is as good as punting.
To me, we choose a bond due to its safe nature and if there's a risk, however minimal, we should avoid at all cost.

I agree but if i did not already own OLAM bond i will take the punt. But i will classify this under my speculative portfolio and not my bond portfolio. So instead of buying equities to trade, i will buy use 50K to buy the 2013 Sep bond yielding 2.5% which current YTM should be about 3.5% since bond price is about 99. Borrow the other 200K at 0.8% interest. Do the math, effective yield on my 50K is (6250+2500-1600-500)/50000=13.3% assuming 1 full year and 0.2% commission when buying. Yield on this play is 13.3 which meets my speculative targets.

Risk? default is the main one but Temasek and owner already committ to raise 750M which will pay off all 2013 bond holders. Interest rate almost zero chance to spike up in 2013.

The only reason i am not doing this is that i own some olam bonds and have a rule to not have more then 2.5% of asset in any one instrument.

Sound interesting "short-term junk bond speculation" ! But how to secure loan of 200k@o.8%? What's the collateral needed? What's the max. capital at risk?

[arthur]

I agree but if i did not already own OLAM bond i will take the punt. But i will classify this under my speculative portfolio and not my bond portfolio. So instead of buying equities to trade, i will buy use 50K to buy the 2013 Sep bond yielding 2.5% which current YTM should be about 3.5% since bond price is about 99. Borrow the other 200K at 0.8% interest. Do the math, effective yield on my 50K is (6250+2500-1600-500)/50000=13.3% assuming 1 full year and 0.2% commission when buying. Yield on this play is 13.3 which meets my speculative targets.

Risk? default is the main one but Temasek and owner already committ to raise 750M which will pay off all 2013 bond holders. Interest rate almost zero chance to spike up in 2013.

The only reason i am not doing this is that i own some olam bonds and have a rule to not have more then 2.5% of asset in any one instrument.

Leveraging 200k to buy a 2013 bond? Not a good idea to me even though logically 2013 tranche should have sufficient cash obligations from Temasek and co to pay off. As one forumer kindly shared that perpetual bond is at 9%, its still within a hairline of distress yield value.

In my opinion, the strongest link of a bond issuer credibility exist only in its weakest link, ie. the perpetual bond yield. Thus I would view Olam bonds as unsafe regardless of which maturity year.

For a YTM 3.5% ( is it really that high?) bond, why not choose a longer duration bond of a safer nature along the lines of Capland, Keppel, NTUC Income, Mapletree, etc.
While the YTM definitely would not match Olam's, neither one would need to suffer unnecessary shocks from short sellers anytime again.
To leverage 200k just to purchase such an issuer bond, I would rather put it in a FD, or other corp bonds of lower but safer nature.

Of course, different strokes for different people.

[greypiggi]

Sound interesting "short-term junk bond speculation" ! But how to secure loan of 200k@o.8%? What's the collateral needed? What's the max. capital at risk?

From private bank lah.... roll weekly in SGD. Collateral is the total sum you have with them.

Arthur, to each his or her own. For me 13.3% returns on 50K capital is very easy money. I also agree with you on default risk = weakest link and hence i am not doing it since i am already facing some of this risk. As for other more blue chip bonds, we will need to do 3 year bonds to get even close to 2%. But having said that, i am doing those too up to 5 years out. But beyond 5 years got int rate risk.

[Stocker]

Selling at last second rather fierce.

[freedom]

If olam bond is so safe, it will not trade at such yield.

the yield demanded is to compensate the risk.

speculative bond does not equal to speculation. There is value within speculative bonds. If I recall correctly, Security Analysis has chapters about trading speculative bonds.

[greypiggi]

If olam bond is so safe, it will not trade at such yield.

the yield demanded is to compensate the risk.

speculative bond does not equal to speculation. There is value within speculative bonds. If I recall correctly, Security Analysis has chapters about trading speculative bonds.

Erm.. Get it right guys. Olam bond is 100% not safe. Just like trading in penny stocks or small china listco or small social media stocks if u do not know the mgmt or industry. I would even consider eln and options here.

I'm just making the point that if like me you trade the above type of highly speculative plays to make double digit returns, then a leverage play on Olam 2013 sep seems to be worth considering. Only default risk and neglible int rate risk for 13% gain. compare this to owning say catalist co, renren, or options or elns.

[CityFarmer]

Yield will always tally with risks, both real and perceived.

I am not sure the risks with Olam are all real.

When all investors were speculating that Bank of America will melt down, together with financial system of America. Mr Buffett had taken it as perceived risk.

[CY09]

Can any1 enlighten me on how does "fractional entitlment be disregarded" affect olam's issuance of bonds and warrants for shareholders? thanks in advance

http://info.sgx.com/webcoranncatth.nsf/V...D0031E4D0/$file/Dec072012-BondRights_IndicativeTimetable.pdf?openelement

[CityFarmer]

There is an interview on Micheal Dee by The Edge Singapore in the latest weekly issue.

I like the closing statement of the interview

"In any financial crisis, the first casualties are truth, trust and confidence. Our economic system ceases to function without them"

The next milestone for this saga is the confirmation whether the right issue need shareholder approval via EGM? I remember this remain a doubt to be cleared by management.