CapitaMalls Asia

[Contrarian]

They need $ to roll-over debt.

Keep on asking for $. Never give out $.

Capitaland is one company that keep coming back. One day market will be disillusioned with them...

Investors should look at the underlying business risks and ask carefully whether the given yields are good enough!! Also, when market interest rates eventually rise in the future, IMHO, it is almost a certainty that such low-coupon long-dated bonds will be priced below their par.

Good points, thanks!

My view is that the risks are significantly high - PRC itself is going through cooling measures for its property sector and there is no guarantee of tenancy and ability for tenants to pay up should there be a correction in the market. China also runs the risk of over-heating, and a hard landing is now expected.

Of course, we would not expect CMA to price their bonds according to "Junk" status, but I do agree even 4.5% is a little too low. Looking at Hyflux's 6% RCPS, perhaps that would be a more reasonable yield (+ a little more for country risk to about 7-8%) to compensate for risk.

Will give this one a complete miss.

[KopiKat]

Preference shares and bonds are different class of investment instruments. Typically, Preference share will be trading at higher yield due to its perpetual clause. When it comes to liquidation, bondholders will be ranked higher than PS holders.

Currently, the SIA 3 years 2.15% bond is still selling at par in open market. So, it is not inconceivable that CMA bond will be selling at a good premium.

Thanks! I go chk SGX and most are very thinly traded,

http://www.sgx.com/wps/portal/sgxweb/hom...come/bonds

I may go tikam if I have free cash.

Important dates for those who are keen,

Public Offer via Electronic Application
Opening date and time : 4 January 2012 at 9.00 a.m.
Closing date and time : 9 January 2012 at 2.00 p.m.

A comparison table extracted from today's SGX Announcement Page 5,

[wrap]
[table=Issuer]
Issue Date
Tenor
Coupon[/table]
[table=SIA]
30-Sep-10
5Y
2.15%[/table]
[table=CMA]
21-Jan-11
1Y and 3Y
1Y: 1.00% / 3Y: 2.15%[/table]
[table=CMT]
28-Feb-11
2Y
2.00%[/table]
[table=F&N]
28-Mar-11
5Y and 7Y
5Y: 2.48% / 7Y: 3.15%[/table] [/wrap]

Closest comparable would be F&N for their 5 and 7 years issue. But, that was a year ago. So, either it's harder to raise $$ now or the quality of CMA issue is not as good and that's why they're offering higher coupon of 3.8% for 5 years vs 2.48% for F&N.

[tanjm]

A relevant question: Is a yield or coupon of 3.8% p.a. good enough for the first 5-year (of a total term of 10 years, assuming an early redemption happens at the end of Year 5) credit risk on CMA, of which the main underlying business risk is that of a developer of shopping malls, including many greenfield projects in countries like PRC, etc.? IMHO, the answer has to be "NO".

Another relevant question: If CMA's real intention is to raise $200.0m in new debts via a 10-year bond with an average coupon of 4.15% p.a. (the average between 3.8% and 4.5%), why should DBS (as arranger), or any or all potential investors who are rational, agree to accept a 'discount' in the yield or coupon in the first 5 years? IMHO, the people behind the deal in CMA and DBS are not very fair and quite clearly they believe that there are enough ignorant and yield-hungry retail investors around; frankly, even a yield or coupon of 4.5% p.a. is not quite good enough for a 10-year risk on CMA.

Investors should look at the underlying business risks and ask carefully whether the given yields are good enough!! Also, when market interest rates eventually rise in the future, IMHO, it is almost a certainty that such low-coupon long-dated bonds will be priced below their par.

You need to assess whether CMA has any chance of default. While the business environment is relevant to its default risk, it is not the only (or even major one). You cannot assess it like a equity investment as debt holders are gauranteed a cashflow sans default.

I had a quick peruse of its prospectus and it currently has a debt to equity of only 6%. Obviously it is possible it will leverage up very quickly after this issue, but based on its current leverage and cashflow (its fund management business alone has enough cashflow to cover the interest and its net assets is very very large relative to the loan amount) it looks pretty low risk of default.

The current coupon of 3.8% is in my opinion decently priced against recent issues and against SGS bonds. And the 4.5% step up at year 5 means: (A) if interest rates remain low, CMA will likely call the bond at 5Y or (B) the 70 bp step up is a partial protection against a rise in interest rates. Another way to look at it is that as a investor, you are selling a interest rate option to CMA in return for 70bp pa extra premium.

As for interest rate risk, this applies to any fixed rate bond (and nearly all bonds are fixed rate) in the market including SGS bonds - its not specific to the CMA bond. I agree that rates may rise. On the other hand, rates may remain low longer than you think. For people who intend to hold till maturity and don't want to invest in equity, this is not a bad option.

[wsreader]

The bond is IPO at minimum size of $2k.
Assuming a retail trader going for a stag successfully tikam and got the minimum size, the market price need to raise to $1.025 just to breakeven.

Further assuming the market price is bid to $1.035, there will be more than enough profit for kopi. However, if there is no buyer above $1.025, than the aforementioned trader becomes a bond investor and collect $38 every 6 months.

This bond is not approved for CPF and SRS, so got to use cash and we know cash is king.

[tanjm]

They need $ to roll-over debt.

Keep on asking for $. Never give out $.

Capitaland is one company that keep coming back. One day market will be disillusioned with them...

Investors should look at the underlying business risks and ask carefully whether the given yields are good enough!! Also, when market interest rates eventually rise in the future, IMHO, it is almost a certainty that such low-coupon long-dated bonds will be priced below their par.

Good points, thanks!

My view is that the risks are significantly high - PRC itself is going through cooling measures for its property sector and there is no guarantee of tenancy and ability for tenants to pay up should there be a correction in the market. China also runs the risk of over-heating, and a hard landing is now expected.

Of course, we would not expect CMA to price their bonds according to "Junk" status, but I do agree even 4.5% is a little too low. Looking at Hyflux's 6% RCPS, perhaps that would be a more reasonable yield (+ a little more for country risk to about 7-8%) to compensate for risk.

Will give this one a complete miss.

Ahem..... i haven't seen anyone quote numbers from the prospectus....

968 million in gross debt.
626 million in cash. net debt is 300+ million
6 billion in equity (total assets of 7 billion)
EBIT of 324 million

Debt average maturity is 3.2 years.

vs debt raising of 200 to 400 million in this issue.

Does this sound like a Hyflux to you? (by the way, NCPS does not gaurantee a coupon and its price is currently 105.8 so its yield is certainly not 6%)

More facts:
5Y SGS bond currently yields 0.85%
10Y SGS bond current yields 1.68%
F&N 7Y bond coupon rate is 3.15% but its last done price is 1.02 so the yield to maturity is lower than 3.15% (prob arnd 3.1% but too lazy to calc it).

---

Preference shares and bonds are different class of investment instruments. Typically, Preference share will be trading at higher yield due to its perpetual clause. When it comes to liquidation, bondholders will be ranked higher than PS holders.

Currently, the SIA 3 years 2.15% bond is still selling at par in open market. So, it is not inconceivable that CMA bond will be selling at a good premium.

I took a look at the hyflux prospectus.

Actually Hyflux pref shares are callable at 7Y with a step up to 8% if not called. I made a mistake in assuming it is NCPS - its not, its actually cumulative. Pref Shares rank behind debt so if it defaults, debt holders get paid first.

Hyflux has a liabilities 800+ million (700+ million debt) vs 200+ million in cash and assets of 1.3 billion.

Its balance sheet position plus pref share conditions make it a much poorer credit risk than CMA. No wonder it had to offer 6% step up to 8%. Its yield is even lower now due to its higher price.

[KopiKat]

The bond is IPO at minimum size of $2k.
Assuming a retail trader going for a stag successfully tikam and got the minimum size, the market price need to raise to $1.025 just to breakeven.

Further assuming the market price is bid to $1.035, there will be more than enough profit for kopi. However, if there is no buyer above $1.025, than the aforementioned trader becomes a bond investor and collect $38 every 6 months.

This bond is not approved for CPF and SRS, so got to use cash and we know cash is king.

I think you meant for a successful (application) retail trader, the worst case scenario is getting just 1 lot (the minimum trading size) even if one applies for more than the minimum (application) size of 2000, assuming there's over-subscription and they do allotments. If you'd meant 2000, then the breakeven becomes $1.015 (take into account min. $25 brokerage + Misc Fees + ATM $1 or $2 application fee).

So, if this trader were to become a bond investor, the interest would be $19 every 6mths. To me, that also means as long as the bid price don't drop more than 3.8ct every year (didn't factor in transaction cost), then you won't be losing $$.

Not being CPF and SRS approved to me also means it's not as "safe" an investment ie. risk is higher than one that's approved.

[freedom]

They need $ to roll-over debt.

Keep on asking for $. Never give out $.

Capitaland is one company that keep coming back. One day market will be disillusioned with them...

Investors should look at the underlying business risks and ask carefully whether the given yields are good enough!! Also, when market interest rates eventually rise in the future, IMHO, it is almost a certainty that such low-coupon long-dated bonds will be priced below their par.

Good points, thanks!

My view is that the risks are significantly high - PRC itself is going through cooling measures for its property sector and there is no guarantee of tenancy and ability for tenants to pay up should there be a correction in the market. China also runs the risk of over-heating, and a hard landing is now expected.

Of course, we would not expect CMA to price their bonds according to "Junk" status, but I do agree even 4.5% is a little too low. Looking at Hyflux's 6% RCPS, perhaps that would be a more reasonable yield (+ a little more for country risk to about 7-8%) to compensate for risk.

Will give this one a complete miss.

Ahem..... i haven't seen anyone quote numbers from the prospectus....

968 million in gross debt.
626 million in cash. net debt is 300+ million
6 billion in equity (total assets of 7 billion)
EBIT of 324 million

Debt average maturity is 3.2 years.

vs debt raising of 200 to 400 million in this issue.

Does this sound like a Hyflux to you? (by the way, NCPS does not gaurantee a coupon and its price is currently 105.8 so its yield is certainly not 6%)

More facts:
5Y SGS bond currently yields 0.85%
10Y SGS bond current yields 1.68%
F&N 7Y bond coupon rate is 3.15% but its last done price is 1.02 so the yield to maturity is lower than 3.15% (prob arnd 3.1% but too lazy to calc it).

---

Preference shares and bonds are different class of investment instruments. Typically, Preference share will be trading at higher yield due to its perpetual clause. When it comes to liquidation, bondholders will be ranked higher than PS holders.

Currently, the SIA 3 years 2.15% bond is still selling at par in open market. So, it is not inconceivable that CMA bond will be selling at a good premium.

I took a look at the hyflux prospectus.

Actually Hyflux pref shares are callable at 7Y with a step up to 8% if not called. I made a mistake in assuming it is NCPS - its not, its actually cumulative. Pref Shares rank behind debt so if it defaults, debt holders get paid first.

Hyflux has a liabilities 800+ million (700+ million debt) vs 200+ million in cash and assets of 1.3 billion.

Its balance sheet position plus pref share conditions make it a much poorer credit risk than CMA. No wonder it had to offer 6% step up to 8%. Its yield is even lower now due to its higher price.

I don't really believe that the liquidity profile of CMA is that good. for reason, its most equity is in the form of Joint Venture and Associates. What makes it worse is that its Joint Venture and Associates are all high geared.


a better understanding of CMA's debt-to-equity ratio probably should add the corresponding asset and debt in its joint venture and associates back to CMA's balance sheet and let's see how strong its balance sheet is again.

also, don't forget its huge capex in China for all its recent acquisitions.

[wsreader]

I think you meant for a successful (application) retail trader, the worst case scenario is getting just 1 lot (the minimum trading size) even if one applies for more than the minimum (application) size of 2000, assuming there's over-subscription and they do allotments. If you'd meant 2000, then the breakeven becomes $1.015 (take into account min. $25 brokerage + Misc Fees + ATM $1 or $2 application fee).

So, if this trader were to become a bond investor, the interest would be $19 every 6mths. To me, that also means as long as the bid price don't drop more than 3.8ct every year (didn't factor in transaction cost), then you won't be losing $$.

Not being CPF and SRS approved to me also means it's not as "safe" an investment ie. risk is higher than one that's approved.

Once listed, the bonds will be tradable in board lots of $1k, but for the IPO, the min investment is $2k for the public offer and $50k for placement. I had assumed each successful retail application will be allotted 2 lots min.

If you include GST, $1.015 may not breakeven for someone alloted with 2 lots. The breakeven should be $1.016 (Sorry, I have over estimated in my earlier post).

For long term invesment, inflation, business risk, interest rate and other factors come into consideration. Unfortunately, I am not sophisticated enough to know whether bondholder will lose $$. There is no bond in my portfolio.

[tanjm]

I don't really believe that the liquidity profile of CMA is that good. for reason, its most equity is in the form of Joint Venture and Associates. What makes it worse is that its Joint Venture and Associates are all high geared.


a better understanding of CMA's debt-to-equity ratio probably should add the corresponding asset and debt in its joint venture and associates back to CMA's balance sheet and let's see how strong its balance sheet is again.

also, don't forget its huge capex in China for all its recent acquisitions.

Its not clear from the documents just how liable CMA is for debt incurred in its subsidiaries and JCEs and associates. I assume, however, that if it were liable (not non-recourse), the'd have to list it as a liability in their balance sheet.

They do have 53 million of income from their fund management business - more than enough to cover interest payments.

It is also not clear how much CAPEX they have to incur going forward on commited projects vs what they've already paid. Do you have the numbers or a reference?

[tanjm]

The market has spoken. The placement (presumably to sophisticated investors) was more than 2 times oversubscribed, leading the issuer to expand the placement offer to 180 million. DBS was offering the placement to me and I was too slow to take it up. At the very least I could have stagged it. Well cest la vie...