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.

Curious case of SIA Engineering

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

SIA Engineering and JP Morgan Asset Management

Unsatisfactory reply from SGX regarding SIAEC

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

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. 

SIA Engineering and JP Morgan Asset Sale

SIA Engineering - Trying to make sense of JP Morgan sale

Curious case of SIA Engineering

Reply by SGX

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

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.

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.

8.7.4

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!

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
Source:dbsvickers.com

Considerations about Hyflux

"Should i sell my perpetuals (BTWZ) or preference shares(N2H) of Hyflux?" asked a concerned HNW individual.

" I don't know..it 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 (BTWZ) was done at a good time for the company because the closest comparison , Hyflux Preference shares (N2H) 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 BTWZ. 

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

Most people  speculate that the company will redeem N2H 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 upcoming N2H)

(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 BTWZ 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 N2H ( or sweetening things up with a shorter maturity ) especially since the yield for BTWZ 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 N2H

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 BTWZ) and given the likelihood that the coupon for the new issuance will be higher than 6% pa, there is not much advantages to redeeming N2H.

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 N2H 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)

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.