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..

Specifications

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...

Penny pinching season

Officially, other than the monthly $1k ETF through POSB invest saver which pays me "brokerage" when i buy, there is nothing i dare buy from the local stock market at this point in time.
The old adage:'Buy when there is blood on the streets' came true again and i hope you took opportunity of that short period of time from late 2015 to early 2016.

What will i be doing since STI has surged - Dec 2016
How to stop oneself from being greedy - Feb 2016
Lessons learnt in this bear market - Jan 2016
Controlling my emotion - Jan 2016

So what have i been doing penny pinching during this lull season of stock investing?

1) Topped up my CPF SA account to the max of  $7k.

2) Topped up my SRS account to the max of $15.3k.

3) Analyse credit card terms and conditions and maximising them.

4) Analyse saving accounts to store the decaying cash. UOB One ($50k max), Citibank Maxigain($150k max), Standard Chartered Esaver ($1 million max) and CIMB fastsaver ($50 k max) are the best of the breed now.  YES, they are in descending order of greatness, taking into account the complexity of conditions and the interest rate they offer.
(BOC kicked me out as a customer as i really maxed out their benefits big time through a legal loophole.. so well..maybe BOC smartsaver?? I haven't been looking over there for over a year.)

5) Booked all my holidays in advance, like 8-9 months in advance. Can you imagine a round trip ticket to Narita on a full fare airline costing only $370 bucks all in during peak travel season in December? Wicked.

6)Using fwd travel insurance to negate the risk of prebooking so early, as it is the company i found that allows me to cover myself so early. Other insurers only allowed me to book about 3 months to 6 months before my departure. Btw, this is my referral link. You will get 5% off and i get $20. I seriously don't know how they will credit me the $20 actually as they don't have my bank account details.....

7) Refinanced my DBS housing loan to only 1% pa and 1.4% pa forever, linked to FD.

8) Dutifully making sure i do some activity in my National Australia Bank Reward Saver account which gives me 2.55% pa on my Aussie dollars
My Experience opening an Australian Bank account as a Singaporean Resident

9) Prepaying expenses which are guaranteed to happen like my childcare fees, telecommunication bills, utility bills.
Child development account-cda-comparison . This gives me a guaranteed 2% pa on the cash balances.
Telecommunication and utility bills. This gives me a guaranteed at least 5% off on my 1 year bills.

10) Checking whether any shop which im going to buy from anyway is listed on Shopback. Referral link. ( you get $5 on your first purchase and i get $5 if you spent more than $25). Take note that sometimes, it would be better to just google for a promo code outside Shopback. A due diligence is required on your part. I don't really like the long period of time it takes to cash out and i do get missing cash back, but oh well, better than nothing.

11) Saving money on renewing my 10 year old car. This has been a good decision as some asshole hit my car leaving a few scratches, a hit and run actually and i didn't fret over it. My servicing cost have also halved as i am more adventurous in trying new ways to save money on this car, using Schnell Ultimate II 'turtle oil' ($19.90 from Giant) and buying my own oil filter ($5.70) and paying only $20 for labour to service my car. Total cost of servicing cost $46 instead of the usual $100-120 bucks.
Renew COE for 10 Years Versus 5 Years Versus Brand new similar car

12) Not succumbing to greedy marketers efforts to brainwash me to buy expensive DHA powdered milk for my son.
Instead i buy concentrated, mercury tested, cod fish oil and drip it into the powered milk i use.
Guardian and Watson is expensive. I buy from iherb , PROMOCODE: LIM2068. ( this is a referrel link. You get 5% and i get 5%). Guardian is offering a 20% off their products now but even after accounting for it, it is still way more expensive buying from Guardian, including delivery and taxes. Take note that iHerb ships from overseas, BUT, it is still cheaper after delivery fees. Prices shown are the nett price. Disclaimer, this is the first time i bought from iherb also and after due diligence, no scams seem to be detected. Do your due diligence too, pls.

Guardian after Promo code OFFER20. 20% off.

Iherb , the price i got

So that's all folks. And here is something to mull about.