CapitaMalls Asia

[bluechipstamp]

I think I have to upgrade it to Ang Bao money now looking at the placement response.

[wrap]
[table=Mkt Price]
-1.04
-1.03
-1.02
-1.01[/table]
[table=Div Y1]
0.038
0.038
0.038
0.038[/table]
[table=Div Y2]
0.038
0.038
0.038
0.038[/table]
[table=Div Y3]
0.038
0.038
0.038
0.038[/table]
[table=Div Y4]
0.038
0.038
0.038
0.038[/table]
[table=Div+Principal Y5]
1.038
1.038
1.038
1.038[/table]
[table=IRR]
2.928%
3.142%
3.359%
3.578%[/table][/wrap]

What yield do u think the market will tolerate? Assuming mkt demands a minimum of 3% IRR, you're looking at a spread of at most 3% for this stag, before transaction fees. Still worthwhile?

[KopiKat]

I think I have to upgrade it to Ang Bao money now looking at the placement response.

[wrap]
[table=Mkt Price]
-1.04
-1.03
-1.02
-1.01[/table]
[table=Div Y1]
0.038
0.038
0.038
0.038[/table]
[table=Div Y2]
0.038
0.038
0.038
0.038[/table]
[table=Div Y3]
0.038
0.038
0.038
0.038[/table]
[table=Div Y4]
0.038
0.038
0.038
0.038[/table]
[table=Div+Principal Y5]
1.038
1.038
1.038
1.038[/table]
[table=IRR]
2.928%
3.142%
3.359%
3.578%[/table][/wrap]

What yield do u think the market will tolerate? Assuming mkt demands a minimum of 3% IRR, you're looking at a spread of at most 3% for this stag, before transaction fees. Still worthwhile?

Hey! This is a Value forum, so let's not use the word 'stag' but more suitable terms to evaluate this investment opportunity.

Let's assume we are looking at short term investments to maximise our free cash. Some of the choices are FD (1-3mths), T-Bills (3-mths) and perhaps maturing SGS Bonds. These are relatively risk-free and offers less than 1% returns. We also have higher risk - higher returns options like Money Market funds.

Now, we compare it with this CMA Bond. Although it's meant for longer term investors with a tenure of 5-10 years, let's be flexible enough to evaluate the short term opportunity. The risk is of course higher, especially more so for those who don't know what they are doing if they just blindly follow some faceless forummers!

As pointed out by 'yeokiwi', a fair comparison would be against other Corporate Bonds, ideally with similar tenure. At $1 par and 3.8% Coupon and 5 years tenure, the probability of it dropping below $1 during list date is very low. Further, the good demand from the Placement tranche also indicates a high probability of it staying above $1 once it list. In total, the probability of losing money is slim.

The next Q is what is the probability of making good returns? The stronger than expected demand for the Placement tranche had caused 'yeokiwi' to upgrade the potential short term returns from 'kopi-$$' to 'ang-pow $$'. IMO, that's a bit debatable (on strong demand) as the issuer had only increased the tranche from $100M to $180M, which is lower than my expected max. of $200M. But, let's leave that aside and look at the possibilities.

Assuming we can make 0.5ct (Net of all transaction costs) within 1 week (some call it stag, but I prefer to call it short term investment). That's 0.5% but if we annualised it over 52 weeks, it becomes a whopping 26%!!

In my case, my most recent experience was with Hyflux Pref. Ya, I also don't like Hyflux as it's too highly geared but it's always a case of looking at probabilities (I may be repeatedly infringing on someone's copyright here) of what's the best/worst case and making a decision on whether it's worth it. Back to Hyflux Pref., my worst case target was to hold it for as long as the mother company don't start showing poor EPS (that means they may not be able to pay my 6%). To cut a long story short, the share price crept up very slowly (retreats occasionally) and after a month, when it hit above $1.05, I decided to sell it as I saw something else I liked more. So, a slightly below 5% return in 1 mth, which annualised to 50%+. Not something to laugh at, eh? My main problem is I'm not able to repeat such annualised returns on a bigger scale and over longer time frames.

Warning : I'm not advocating that all of you should rush to apply for this. Just make sure you know what you are doing, the risks involved, work out your own probabilities and judge whether it's going to be worthwhile for yourself.

[yeokiwi]

I think I have to upgrade it to Ang Bao money now looking at the placement response.

[wrap]
[table=Mkt Price]
-1.04
-1.03
-1.02
-1.01[/table]
[table=Div Y1]
0.038
0.038
0.038
0.038[/table]
[table=Div Y2]
0.038
0.038
0.038
0.038[/table]
[table=Div Y3]
0.038
0.038
0.038
0.038[/table]
[table=Div Y4]
0.038
0.038
0.038
0.038[/table]
[table=Div+Principal Y5]
1.038
1.038
1.038
1.038[/table]
[table=IRR]
2.928%
3.142%
3.359%
3.578%[/table][/wrap]

What yield do u think the market will tolerate? Assuming mkt demands a minimum of 3% IRR, you're looking at a spread of at most 3% for this stag, before transaction fees. Still worthwhile?

Well, if the market ignores the last 5 years of the CMA bond, I think your calculation will be correct.
3% is not too bad if an investor can get around 20 lots.
That is at least $500+ ang bao money to spend.

Going by the previous CMA bond distribution,
http://info.sgx.com/webcoranncatth.nsf/V...20034B446/$file/News_Release-CapitaMall_Trust_2-year_retail_bonds_1.9_times_subscribed.pdf?openelement
I suppose any investor needs to assess the possible lot allocation ratio and see if it is worth the effort to go for it.

[RBM]

While I believe that Preference Shares and Bonds can have their time and their place and I have some personal holdings in DBS 4.7%'s, Hyflux 6%'s and Cheung Kong 5.1/8%'s, I am staying well clear of this CMA issue. The coupon is too darned low and, if you need a fixed interest investment at the moment, there are superior destinations for your hard earned Singie Dollars, i.e. where there is a better risk-reward balance. The three I mention above for example or Global Logistics Properties recent 5.5% p.a. placement (the Singapore Government is GLP's major shareholder). Just my two cents worth.

[tanjm]

While I believe that Preference Shares and Bonds can have their time and their place and I have some personal holdings in DBS 4.7%'s, Hyflux 6%'s and Cheung Kong 5.1/8%'s, I am staying well clear of this CMA issue. The coupon is too darned low and, if you need a fixed interest investment at the moment, there are superior destinations for your hard earned Singie Dollars, i.e. where there is a better risk-reward balance. The three I mention above for example or Global Logistics Properties recent 5.5% p.a. placement (the Singapore Government is GLP's major shareholder). Just my two cents worth.

I'm not necessarily evangelising CMA, but "Better risk reward"? Not sure how you can clearly justify this.

DBS 4.7% currently has a effective yield of 4.3%, dividends are not gauranteed.

GLP 5.5% is a **perpetual**. This means it has considerable interest rate risk. Cheung Kong 5,125% is also a perpetual. Not sure what their current prices are.

Hyflux, as mentioned, has big leverage and has non-significant credit risk.

It is likely the market has appropriately priced all of the above against their risk.

---

Interesting.... i went to look for GLP and Cheung Kong on the exchange. They do not appear to be listed (i.e. not retail). If so, the 5+% is definitely compensation for interest rate and liquidity risk. You're going to have a possible problem finding buyers if you intend to sell and if interest rates go up or are volatile when you try it, even more so.

Also GLP is callable from 2017 with a step up of 100bp in 2022. Basically, this means if interest rates go up, they'll continue (albeit with some protection from the step up) but if interest rates stay low, they are likely to call it - very likely before the step up. Pretty big interest rate risk given you don't enjoy the benefit of the spread over SGS beyond around 2017 if rates stay low.

[RBM]

Hello tanjm,

GLP and Cheung Kong did not have a retail tranche for their recently issued S$ bonds. I understand the GLP 5.5% paper has traded well above parity since it commenced trading and the last done price for Cheung Kong 5.1/8% was S$ 100.775. I have not found a problem trading the three Singapore Bonds/Preference shares I mentioned, even Cheung Kong which is indeed OTC traded (I have both bought and sold units). In fact, the value of daily trades in DBS and Hyflux preference shares is higher than the daily traded value of many of the equities we discuss on VB's - and I'm not just referring to the tiny market caps.

I intend going in for more Cheung Kong 5.1/8% soon - I personally like the combination of coupon, credit worthiness and current price etc. and IMHO this is by some margin superior to the CMA offering.

As I understand it, while the DBS 4.7% Bond does not guarantee payment of its coupon-dividend - the mother-stock can not pay dividends if they don't pay the Bond coupon out. That gives me some comfort.

One other factor in my thinking regarding the three I mentioned and the GLP issue is that they were larger offerings than CMA's - I am not sure if this will be a factor vis-a-vis liquidity.

Just my (further) two cents.

RBM

[bluechipstamp]

It doesn't quite matter whether you're computing this based on 5 years or 10 years. If u compute based on 5 years, you'll compare the yield with other comparable 5 year issues. If it's based on 10, then you'll need to compare it with other higher paying 10 year issues.

In fact, the actual yield if CMA calls the bond in 2017 is LESS than what I've computed above, since u need to be compensated for the option you sold CMA to potentially extend the bond by another 5 years.

I concur that the risk of losing money in this stag (sorry, kopikat) is low. The main risk lies in being allocated so small an amount that the transaction fee eats up your return. However, my point was more to show the limited upside. Personally, I think a 3% spread is not a conservative assumption, but perhaps there're enough greater fools out there.

[KopiKat]

I concur that the risk of losing money in this stag (sorry, kopikat) is low. The main risk lies in being allocated so small an amount that the transaction fee eats up your return. However, my point was more to show the limited upside. Personally, I think a 3% spread is not a conservative assumption, but perhaps there're enough greater fools out there.

NP, let's call a stag a stag, I'll stop calling it a deer then.

Ya, you are right, the transaction cost will eat up a large chunk of your returns if you are alloted only a small amount eg. 1-2 lots. For a small retail 'stagger', the ideal would be to be alloted at least 6-10 lots, thereby reducing the transaction cost to ideally <$5/lot ie. you just need the CMA Bond price to go up 1 bid (0.5ct) to breakeven. If the previous allotment is any guide, then a 'stagger' should apply for at least 6-10 lots, more if you can afford the risk.

The problem is if your Fund Size is small, say <$100k, putting in $10k to stag is equal to 10% of your funds and you may lose sleep over it. In such a case, I don't think it's worth doing for that small potential 'Ang-Pow' $$. But, if you have a large fund size and you even have holding power to let it become part of your Asset Allocation, ya, why not? If it goes up in the short term, by all means, stag it. If it's stuck at $1, keep it for the interest or sell at a small loss. I'm sure $25++ is not a lot of $$ to learn some new 'tricks' or gain some new experience; just forego one of you usual restaurant meal and you already recover your $25++

In fact, the value of daily trades in DBS and Hyflux preference shares is higher than the daily traded value of many of the equities we discuss on VB's - and I'm not just referring to the tiny market caps.

IMO, for liquidity, we should be looking at the no. of lots transacted, not the Value. For eg. 10 lots @ $100k each = $1M Value does not equate to better liquidity than 1000 lots $0.90 = $900k Value. Just for reference, as of now, your above mentioned Pref Shares liquidity is 0 and 25 lots. If you have 100 lots (only $10k worth) to sell in a hurry, then how?

[Musicwhiz]

Interesting discussion here on stags and deer.

My opinion is - there seems to be a lot of analysis on whether one can successfully stag this corporate bond IPO, and also a lot of worrying and heartache if one gets alloted "too few lots". Perhaps it may be better to just hold the bond to maturity to be ensured of the yield and also to lessen the stress levels!

[KopiKat]

Ya, you are right, the transaction cost will eat up a large chunk of your returns if you are alloted only a small amount eg. 1-2 lots. For a small retail 'stagger', the ideal would be to be alloted at least 6-10 lots, thereby reducing the transaction cost to ideally <$5/lot ie. you just need the CMA Bond price to go up 1 bid (0.5ct) to breakeven. If the previous allotment is any guide, then a 'stagger' should apply for at least 6-10 lots, more if you can afford the risk.

Sorry, I made a mistake, 1 bid size is 0.1ct. So, we'll need at least 5 bids up from par for the above to be true.