Wednesday, October 11, 2017

Unsatisfactory reply from SGX Regarding SIAEC - Part 2

Oh boy, i sound like the mad dog who refuses to let go.

Actually, if they have read my blog, they would have realised i already checked the annual reports and also checked the funds JP Morgan holds.

The annual report reflects many nominee accounts who hold shares for people and one of these nominee accounts could be holding shares for JP Morgan. Most likely DBS Nominees or Citbank Nominees since they are the only ones who hold more than 38.8 million shares. 

I understand the rule that a shareholder, holding less than 5%, do not need to issue notifications as they are not substantial shareholders. 

This reply email from SGX doesn't tell me anything i don't already know. Perhaps, it adds to my curiousity only.

What i am curious is:
1) How come SGX through their stockfacts service is aware that Matthews own 22 million and Seafarer owns 10 million but not aware that JP Morgan owns 38.8 million shares?
2) Is there some form of market manipulation going on where major news are allowed to broadcast news but no one knows what's happening and no one questions? I mean if im a big  boy and just releasing such unverified facts to move a share price without any cost, wow, easy money.
3) Can SGX stockfacts be relied upon and trusted? 

Which points me to another question. Why does SIA not want to privatise SIA engineering since it already owns 77% and save on listing fees?

Lots to learn..lots to learn

Tuesday, October 10, 2017

Unsatisfactory reply from SGX regarding SIAEC

Alamak. What kind of reply is this? Why is SGX asking me to clarify with the source of the information when it is already published publicly in Reuters and SPH Business Times .Unless they are implying the above news is unverified. 

Reply by SGX

Anyway,  for the sake of continous learning and curiousity, i have emailed back.

Saturday, October 7, 2017

SIA Engineering and JP Morgan Asset Management

I understand that SIA Engineering was dropped as a STI Component on 1 Sep 2017 and this remains the most possible explanation for now, though lingering doubts remain.

The Curious Case of SIA Engineering
SIA Engineering and try to make sense of JP Morgan's sale

Based on SGX website, the Edge Singapore mentioned JP Morgan Asset Management Real Assets (Singapore) Pte Ltd, so i went to google and it brought me to a list of funds managed by JP Morgan Asset Management.

The most likely place a stake such as SIA Engineering would be hiding in would be in the following 3 funds.

JP Morgan Funds - Singapore Fund (Total fund size of USD63 Million)
JP Morgan Funds - Singapore Fund

JP Morgan Funds - Asean Equity ( Total fund size of USD433.9 Million)
JP Morgan Funds - ASEAN Equity

JP Morgan Funds - Asia Pacific Equity (Total fund size of USD 919 Million)
JP Morgan Funds - Asia Pacific
Based on the total fund size and top ten holdings, it is impossible for SIA Engineering to be among the list of funds above, unless they bought it after July 2017. The traded volume, however, does not correspond to this hypothesis.
Maybe, it is in the other entities of JP Morgan. Anyhow, let's see what SGX emails back with.

Thursday, October 5, 2017

Sia Engineering - trying to make sense JP Morgan's sale

SIA Engineering's response to SGX queries still sheds no light on why JP Morgan offered to sell 28 million shares. Looking at the volume traded on 4 october, about 5.5 million shares changed hands through SGX. The past 2-3 months total volume also don't add up to 28 million which mean they haven't sold it yet. Could they have done it through a married deal and who is the counterparty? According to SGX rulebook, married deal needs to be reported.


Direct Business must be reported through the married trade reporting system of the Trading System under Rule 8.7.5.
I need to be educated on this.

How did Reuters or Bloomberg know about this? And why would JP Morgan make it a public news? Very curious.

Actually, people tend to focus on the bad news but every sale has a buyer and what if the buyer who is not known is warren buffet? Anyway, just some due diligence  before i decide to plonk in more money if it goes down further.

Comparing the 767 (old model ) vs 787(new model), indeed, SIA engineering, like Comfortdelgro, Singpost, SPH is facing the disruption due to new technologies. Using the above comparision, if every old plane is replaced with a new one and assuming the total number of planes serviced does not increase, SIA engineering will be facing with a 65% reduction in total man-hours.
We are indeed entering a new era of technology disrupting our lifes!

Wednesday, October 4, 2017

Curious case of SIA Engineering

Straits Times reported a massive selling of 38.8 million shares in SIA engineering by JP Morgan. This likely being the reason why it plunged 6% to $3.15.

BUT................A look at the Twenty Shareholders breakdown in their latest Annual Report shows Singapore Airlines Limited holding on to 77.72%

JP Morgan is not in the list. So where did JP Morgan get 38.8 million shares to sell?A look at SGX website Stockfacts on 04/10/2017 also shows JP Morgan not in the list.

The next biggest shareholder is Matthews , holding 22,873,500 shares which is much lesser than JP Morgan's short sale volume of 38.8 million. How do i make sense of this? Are the facts of the reporting wrong? Did JP Morgan borrow shares to short this counter? How did JP Morgan get 38.8 million shares unless Matthews ,Seafarer and some others combined to lend them the shares? Matthews and Seafarers don't seem to be subsidiaries of JP Morgan, based on my brief check on the internet .Will see the short sale report tmr. 

I just stopped eating my prawn mee soup and added some shares to my existing collection. Given its recurring free cashflow, no debt, 4 plus% dividend yield, again, its a sin not to buy since stocks are like rubber band.

Haven't been following this counter for years but a brief search on the internet word says about new aircrafts needing less maintenance, hurting SIA engineering. DBS research in July 2017 noted in their report about a potential catalyst regarding a merger with ST Aerospace or privatization with SIA. ( huh where did this thinking come from?? I can't find any supporting evidence.) . Anyhow, let's hope for the best!

Analysts: Suvro Sarker and Glenn Ng

Wednesday, September 20, 2017

Bought Comfortdelgro and hoping for the best

The dividends being 5%+ and a currently, consistently free cash flow positive company with little or no debts. With the PE being in the low teens, it is a sin for me not to take part.

Judging by the huge gap down coinciding with the huge short-sell volume on 15 Sept and 18 Sept, this indicates that the huge down is due to short-sellers, not genuine sellers. A short-seller has to buy back the shares eventually.

Short-sell value
19 Sept - SGD 7,335,227
18 Sept - SGD 13,958,536
15 Sept - SGD 19,597,813
14 Sept - SGD 1,642,692
13 Sept - SGD 2,714,317
12 Sept - SGD 1,320,798
11 Sept - SGD 1,342,370

There is no denying that Grab and Uber is affecting them greatly. There is very little catalyst that i can imagine coming from the alliance between Uber and Comfort. The short sellers must also be taking the opportunity to short it when comfort didn't clinch the contract for the MRT line.

I am hoping for the best and will average down as it goes further. The short-sell value seems to decrease on 19 Sept. Let's see if it decreases further.

Sunday, September 3, 2017

Considerations about Hyflux

"Should i sell my perpetuals (BTWZ) or preference shares(N2H) of Hyflux?" asked a concerned HNW individual.
" I don't is complicated."I said. "Don't ask a church mouse".
But that got me thinking.

There is no denying that Hyflux is super leveraged and it is issuing debt to repay old ones. 

In May 2016,the issuance of $500 million perpetual securities (N2H) was done at a good time for the company because the closest comparison , Hyflux Preference shares (BTWZ) has been trading consistently above par of $100 since its issue, even reaching $105 at one point ( current yield of 5.7+pa).This gave the company an opportunity to issue a 6% coupon for N2H. 

Coupled with the very low interest environment then, there were many investors willing to take the risk.

BTWZ price chart ( Bondsupermart)

Most people  speculate that the company will redeem BTWZ on 25 April 2018 to avoid the step-up coupon of 8% pa. But, i am wondering, how is Hyflux going to pay back?

1) Divest projects

They have stated they intent to divest partially Tuaspring and fully divest Tianjin Dagang. 

Assets held for sale = SGD 1711 million
Liabilities held for sale SGD 664 million
Net = SGD 1047 million ( more than enough to pay back BTWZ)
(Based on Unaudited Financial Statements For The Second Quarter and Half Year Ended 30 June 2017)

But, who are going to buy them as these are customised projects and  transactions are subject to regulatory approvals? Besides, Tuaspring has been making losses so the eventual sale price might be lower. 

2) Reissue another preference share or perpetual securities.

Currently, investor sentiment is different. Investors are going to again look at the closest comparison N2H on 25 April 2018 . Sadly, it has been trading consistently below Par since late July 2016. Therefore, i think Hyflux will have to issue another perp with a coupon greater than 6%pa to pay back BTWZ ( or sweetening things up with a shorter maturity ) especially since the yield for N2H has been hovering above 6%, having even reached to a high of about 6.8+% in dec 2016.  
No thanks to the O&G related bond defaults and the higher likelihood of interest rate rises. 
N2H Price Chart ( Bondsupermart)
3) Don't redeem the BTWZ

This is a likely possibility too. Not having to reissue a new tranche could save Hyflux the issuance expenses. The issuance expenses was SGD 5.2 million ( 1.04% of $500 million for N2H) and given the likelihood that the coupon for the new issuance will be higher than 6% pa, there is not much advantages to redeeming BTWZ.
However, i think this will shed a negative light on Hyflux as there are expectations that they will redeem. 

Hopefully they are able to divest their assets for sale. Not redeeming BTWZ is the worst outcome among the 3. Their ability to easily sell their debt to the retail market is due to their brand and their history of repaying in full their debts. Without this ability, their leveraged business model is dead.

As with Keppel, Sembcorp, Swiber whose fortunes are so intertwined with the oil price, who is to know that Hyflux ( a water company) is also a victim as their supposedly big customers in MENA are cutting back on their infrastructure budgets.

A saving grace is that their customers are 98% municipals (63% Singapore government related entities) so the risk of them reneging on contracts is low. Hyflux has also been giving out dividends to her common shareholders albeit decreasing in amount. I guess its not a simple thing as to suddenly stop completely  the payouts as this will surely have ramifications on their share price and indirectly, their ability to find sources of funds. Selling equity seems like a remote possibility given the state of the share price.

The issue is rather on cash flow liquidity, regulatory risk( divesting) and project execution.
Hope Hyflux can think of something BIG out of the box. ( ELO seems insignificant, at most a distraction)

Saturday, June 10, 2017

About Corporate Bonds: My nearly itchy fingers

My banker called me one day and asked me if i wanted to participate in a certain OTC ( over-the- counter means its not on any exchange like Singapore Exchange) Singapore company bond issue denominated in SGD in the primary market ( meaning IPO of bonds). It's really HOT, she said...many people subscribing ! Buy Buy Buy Buy ...and im feeling a little bit dizzy already.  Ok she can't say that by regulation...Many times i exaggerate..

1)Unrated, perpetual. This means the company has a choice not to pay back the principal.
2)Dividend stopper . This means equity holders won't be paid dividends if  bondholders aren't paid their coupons.
3)Cumulative coupons if coupons are deferred. The company will have to pay the accumulated coupons if they missed any.
4)Coupon reset in 10 years. The company will have to add 100bps ( aka 1%) to the coupon.
5)NC5 . This means Non-callable within 5 years. After 5 years, the company has the right to redeem the bonds if they have a cheaper source of funding.

The Conversation  ( exaggerated again but the gist is there)
" The bank allows you to leverage on this unrated bond at a Loan-To-Value of about 50%. at about mortgage loan rates. You can pay back anytime with no penalty and you can withdraw anytime in cash the build-up value of the bond" - Her
" Unrated can lend meh????" - me
"Yes" - Her
" That will nearly double the yield and give me a source of funds when opportunity strikes..." - me thinking
"Yes, pls give me the minimum denomination as i don't have balls of steel ...... " -me
" You are so handsome and you are the sweetest guy i ever met...." Her, before putting down the phone.

As with all things in life, a few days later, i was told i wasn't allocated ANY and i guess i will have to wait by my phone like a forlorn puppy for my beautiful Angel to call me back again and call me handsome...i miss her ..truly.... On hindsight, i was kind of relief i wasn't allocated.

Now, the part on being able to loan an unrated bond at a high LTV with a low interest rate kind of piqued my interest. Goh Eng Yeow from Straits Times wrote about ratings in a local context before here

In summary about MY views about ratings

1) It is a tool for justification. To put it in an ah beng way, cover backside.  To an analyst or accountant, they will have more than enough skill to check if a company is able to pay back its debts but no, they still can't go ahead with the investment for their fund house even if it is perfectly safe, they need to get a chop (rating) from the rating agencies who uses the same information as them. If the investment goes awry, at least one can say it had a AAA rating when they purchased the investment

2) It is so ingrained in society, Many fund managers are only permitted to buy bonds with these AA ratings, some banks i heard are only permitted to loan on rated bonds . It's all about investor confidence. Even governments need these ratings.

3) It is bullshit. I don't mean it has no value. It has value in giving people confidence ( however needless), giving people justification on their actions, giving time-starved people who don't have the time to look through the financial statements, or people who are not skilled to look at the financial statements. ( It really has value for those who are not skilled in reading financial statements which is the point of Goh Eng Yeow which i agree to a certain extent).

4) It is hard to believe it has no bias-ness. The company who is being rated is the one who PAYs the rating agency. 

5) It could be more risky to have a a good rating. As the saying goes, the higher one goes, the harder one falls. Some examples:
QNBK 2.125% 07Sep2021 Corp(USD). It's  A+ gets lowered to A and the price dropped. Currently, it is about USD$95, compared to it initial price of  USD$100.
RCOMIN 6.5% 06Nov2020 Corp(USD). It's B+ got lowered to CCC. Currently, it is about USD$74, compared to its inital price of USD$100.

6) Ratings agency have the means to earn unlimited money. They are powerful. Just imagine you are able to predict with 99.9% accuracy the direction of the bond or share price just because you know the timing of the change in rating. ( note: i bold timing, because astute investors would have already picked up the deterioration of fundamentals and the rating agencies play catch up). For the above bonds , the price immediately changed when the rating change is announced. And these ratings agency rate thousands of companies and governments, not just a lame CEO who insider trades his one and only company.
I believe ( i hope) there are regulations but come on, life is not so simple and furthermore, they rate governments too.

So why would a company not rate its bonds?

Life sucks! Believe me...its really does...