Oxley Retail bonds 5% pa 4 years...in the wake of Trikomsel

Occupying my thoughts of late is whether to invest some money into Oxley Retail bonds..yes im yield hungry and a whore.

Lest you weren't aware. Trikomsel is an Indonesian company which is in the business of selling cellular phones in Indonesia. They issued SGD corporate bonds to mainly PB (mainly accredited investors a.k.a quite rich people) but now they are very likely to default on their SGD bonds. What sucks about this is they would rather default than to issue rights to raise funds. It seems they are going to give their Indonesian creditors priority over PB folks in Singapore. It's all still unclear at this stage but some lessons are to be learnt here.

1. Buying bonds from a foreign corporation is risky as they may not follow local laws and MAS can't do much. Besides, nearly all of Trikomsel's business is conducted in Indonesia, so it makes sense that they don't piss people in Indonesia.
2. Having powerful shareholders may not be a sign that buying the bonds are safe. Trikomsel has Softbank (Big boy) as its substantial shareholder and i guess by this token, many would have been led to believe that investing in their bonds are safe but it seems that Trikomsel is "protecting" the shareholders to the detriment of bondholders.
3. Being an accredited investor ain't a good thing as you get thrown junk by banks since you are believed to be savvy, so you are less protected by MAS, so to speak. Fortunately, one can opt-out of this "accredited" status now in Singapore.
4. Given the worst case scenario, how much can you liquidate by selling their inventory of handphones?

Now, about Oxley retail bonds. This is a Singaporean company, not like Trikomsel, so Oxley follows the laws of Singapore. It develops ,sells and invests in properties, not like Trikomsel . Properties keeps much better value than handsets.Sounds good, but the problem is i'm an ultra conservative,risk averse chicken who prefers to walk up stairs and take a ship, just in case the lift drops from the 28th storey or the plane crashes.

Financial Convenants

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Balance Sheet

Part of the financial convenants (a.k.a terms) is that Oxley's consolidated total borrowings to consolidated total assets from 1 July 2016 onwards must be 0.70:1. Breaching any of the financial convenants, bondholders ( if more than 25% agree) can take action to demand return of capital and accrued interest.

Done by a risk-averse chicken

0.65 VS 0.70. 

This is too close for comfort for this chicken here, given that mark to market value of the assets could change rapidly especially when Oxley have lots of property development overseas, exposing itself to currency risk ( which i guess the fall in rupiah against SGD is a factor in Trikomsel's woes).

Goodbye Oxley.

Child Development Account (CDA) Comparison

So we have a baby and since Standard Chartered has this priority banking feature for the whole family, i thought let's sign up the whole family to be under the scheme and along with it came the Standard Chartered Child Development Account (CDA). A few weeks later, they announce they were exiting this business which coincidentally, many local banks started to come up with a slew of promotions to entice one to sign up for their CDA accounts.

POSB CDA 

UOB CDA

OCBC CDA

Summary

POSB - 5 year guarantee of 2% pa for first $12,000 and 0.05% pa, thereafter.

UOB - 1.7% pa for first $20,000 amd 2 % thereafter.

OCBC - 2% pa for first $36,000 and 0.05%pa thereafter.

Seriously, UOB can go fly kite, since who in their right mind will put in so much money to be locked up in a CDA account just to reach that "promotional" 2% pa.  For a single baby family, the optimum amount to put in will be $12,000 ( i place in $6000 + the maximum government matching of $6000). POSB and OCBC is similar for the optimal amount but i went for POSB instead for their transparent guarantee of 5 years.

Thankfully, the process to switch CDA account was painless and surprisingly quick as our fabulous government made it easy to switch online through this link.

Time to look for a breast pump as the hand me down medela swing ( this only pumps one breast at a time) took more than one freaking hour to use, which makes Wifey very frustrated which results in a not that great time for the Hubby. Buy a double pump one(pumps two breasts concurrently) instead as it takes half the time. 

The Stock Market Bugger and Portfolio

The recent correction revived my interest in the stock market with some deployment of my hard-earned war chest. Since my last post in December 2014 about the US interest rates, i am getting ready for it by first repricing my home loan to the DBS FHR (1.1%+FHR, no lock-in) and boy was i in the nick of time as they increased it the next day to (1.5% +FHR, 3 years lock) which is no longer attractive in the market currently(UOB 1.68% is better now,imo). My home loan has effectively decreased from about 2.1%(1 month +1 month sibor) to 1.5% currently.

The second thing i did was to sell half of my capmalltrustbonds3.05% at a price of $1.05 (acquired during IPO) immediately after the interest was given. The original intention was to sell all of it but given the current sub-IPO price of about $0.993 with some interest having accrued, heck it, as there is still some uncertainty about when interest rate will rise since US inflation is still pretty low. Selling this was to bolster my warchest to whack the sunken stock market bugger real hard if it ever becomes a 2009 crisis but i doubt it.

The third thing i did was to buy shares, namely, UOB,OCBC, Stamford land, Ireit, Accordia, ST Engineering, Jardine C&C, Keppel and M1. Having experienced the 2009 crisis, learning and profiting from it, i bought the shares 1 lot ( yes 100 shares each time) as it tanks...the more it tanks i increased it to 2,3,4,5 lots, capping my purchase to a max of 5-7K each day to pace my warchest. Having to pay only 0.18% commission with no minimum allowed me to do that. The cold comfort of Wee Cho Yaw buying UOB at about $22 and $18.76 per piece and OCBC's discounted DCA price of $8.71 gave me a benchmark to work with and heck, these bank shares price/book has been the lowest in 5 years with the former giving 4.6% dividend yield and the latter 4% dividend yield. Having ST Engineering director buy STE at about $2.75 with its dividend yield of 5.6% makes me shake off any losses i get hit with as i average down. I try not to average up, only average down, so the purchases came to an end with the recent bullish state of the stock market, leaving me with 2/3 of my warchest still languishing in high-yield bank accounts, namely, ocbc360 and CIMB. 

$14580 per annum of passive income from bonds and equity ( non-CPF). The journey of a trillion miles continues.

Direct From the Federal Open Market Committee

Forget about CNBC, Bloomberg, Reuters, Analysts Reports, Newspapers e.t.c. It's best to be informed from the source. 

"......When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run......"- Federal Open Market Committee, 17 Dec 2014

Seems like those who are heavily leveraged in loans, especially floating rate home / mortgage loans can heave a great sigh of relief. 

Current US inflation rate: 1.3% as reported by the Bureau if Labor Statistics (BLS) on December 17, 2014. 

IFAST IPO - What i like and dislike

To me, no matter how excellent a company's business model or financials is, it is extremely important to a minority shareholder to know what his or her exit strategy is. What's the use of investing in an excellent company where the returns are not shared meaningfully with the minority shareholder? Many people say that as long as the business is doing well, the company share price will follow suit. Yes, that happens and the minority shareholder can reap a return from the capital appreciation, BUT, stop and think about companies which don't give much or any dividends and yet,  it's price still increase.

Why should the share price increase when there is no or very little sharing of the profits when the company is doing very well? In my opinion, it is just sheer hope or speculation that Mr Market will buy it at a higher price OR the majority shareholder will sell the assets or company at a high price and capital be distributed back to the minority shareholders. In short, investing purely for capital appreciation is purely gambling, instead, cashflow(dividends) and its reinvestment and more cashflow and its reinvestment is what Albert Einstein called, the eighth wonder of the world. He who understands compounding earns it, he who doesn't, pays it. Thats why i launch http://sgminorityshareholders.blogspot.sg/

What i like about IFAST

This is a type of company which do not need much in terms of capital spending and super scalable. It is able to churn out free cash flow consistently, assuming it can ward off competition. Current competitors are DollarDex, Aviva Navigator,Poems platform,banks. 

What i really dislike about IFAST

They have no dividend policy and have only recommended a dividends of 60% of their net profit in 2015 and 4Q2014 only. Thereafter, it is really a gamble on whether any dividends will be paid as they did not promise nor recommend anything beyond 2015. See below print screen.Important data is underlined in RED.

At 95 cents, IPO price and using year 2013's net profit of $8,474,000 as a guide for the net profit of year 2015. (because this has been audited and is the most recent full year. Note that this is just an estimate, assumption,guide e.t.c).

Pay out as dividends in 2015 : 60% of $8,474,000 = $5,084,400

Post-IPO shares: 256,225,334

Dividend yield in 2015 ONLY: (5,084,400/256,225,334)*100% = 1.98%. 

This is not attractive to me and after 2015, who knows. 

Launch of SGMinorityShareholders

I have been investing for many years and feel dis-empowered as a minority shareholder. When i see majority shareholders who are usually directors enriching themselves with their high remuneration or cementing their control over their companies with relatives, while at the same time, giving little as dividends to the other shareholders, i feel helpless and the only avenue is to divest. I remember having invested in numerous companies which were subsequently delisted at a very low price due to a very low offer(relative to NAV)by the controlling shareholder. I wished i could just connect with the other shareholders to reject the offer but there was no such avenue.

What you will see for now:
The board of Directors remuneration will be compared with the total dividends paid out to all shareholders for each year.
The board of Directors remuneration will be compared with the net profit of the company during the year.

Should the total remuneration of the board of Director's be more than the total dividends paid out to all shareholders?
 I hope this site ( sgminorityshareholders.blogspot.sg) serves as a small stepping stone towards a greater voice for the Minority Shareholders.
Make use of this site to get updated, connect with other Minority Shareholders before AGMs, push for EGMS/Resolutions or agree on a fair offer price.

Oil Price and Interest Rates

Most people have been forecasting the interest rates to rise by 2015, including me. The chorus of selling bonds and REITS in anticipation of such a scenario have been deafening. The chorus of selling shares now in anticipation of tightening and interest rate rise has also been deafening.Having held off doing anything in the past 2 years , other then buying Super Group (yes, im still holding on) and buying and selling Jardine CC), i finally gave in to picking up some other shares, given the change in market conditions and also the uncomfortably high proportion of cash i hold.

The US Fed desires an about 2% inflation growth and a low unemployment rate. Currently, the inflation rate is low at about 1.7%. With oil price being DECIMATED, i do foresee a reduction in inflation rates and HENCE no pressure on the US Fed to increase the interest rates to squall any runaway inflation scenarios. The act of China lowering their interest rates and Europe, together with Japan, doing QE makes it even harder for the US Fed to raise interest rates which if they do, would increase their US dollar strength and hurt US employment.

I got this feeling that since QE, ultra low interest rates have not helped, now oil prices through shale oil production are being used to spur the economic engine by US. They do have a lot of tools.

Seems bullish for the general stock market.

Total Debt Servicing Ratio (TDSR) for Property Loans - a very pleasant surprise

I haven't been looking at properties for some time but i had a pleasant surprise when a friend told me that I could actually use my equity portfolio to 'increase' my gross monthly income so that i can borrow more for a property loan based on Total Debt Servicing Ratio (TDSR)

Examples of some eligible financial assets to 'increase' ones gross monthly income

Gold, unit trusts, structured deposits, stocks, debentures

If i pledge these financial assets to the bank, i could use 70% of its value to 'increase' my gross monthly income. However, if these are not pledged, i could only use 30% of its value.

Gross monthly income from eligible financial assets = (70% or 30% X eligible financial assets) divided by 48

Say for example, SGdividends happens to have $1 million worth of eligible financial assets.

Pledge to the bank

70% X $1 million = $700,000

'Increased' gross monthly income = $700,000/48 = $14,583.33

Do not pledge to the bank

30% X $1 million = $300,000

'Increased' gross monthly income = $300,000/48 = $6,250

Now, that's a lot of 'additional' gross monthly income. However, this is what the MAS guideline (MAS notice 645) allows and i have not verified how much more stringent the banks will be.