Pages

Friday 30 September 2016

Perisai Bonds on shaky ground - Ezra may be in possible jeopardy if firm fails to redeem its bonds


Source: Straits Times 30 Sep 2016


A second Singapore-dollar bond default from the hard-hit oil and gas industry could be on the cards.

Perisai Petroleum Technologi, a company listed on KLSE, and its bond holders are struggling to agree on $125 million worth of notes due to mature on next Monday.

Ezra Holdings, with a 22.5 per cent stake in Perisai via two units, could find itself in jeopardy too should the firm fail to redeem its bonds.   The two firms are linked through a US$43 million (S$59 million) put option.

Perisai is seeking note holders' agreement to waive the payment of note principal and interest due on 3 Oct 2016 and also wants to postpone the maturity date by four months to 3 Feb 2017.   Perisai is operating "under extremely tight financial conditions" as business has been hurt by weak crude prices and slow economic growth.

(For full article and details - see Page C1 of Straits Times).

http://www.straitstimes.com/business/companies-markets/perisai-bonds-on-shaky-ground

Article Link

Friday 23 September 2016

You're Not as Rich as You Think (by Satyajit Das)



Source: (Bloomberg)

Article Link


You're Not as Rich as You Think
By Satyajit Das


The idea that the world is awash in savings -- one factor driving the theory of secular stagnation -- is, on the surface, a persuasive one. Too bad it may not be true.

Yes, the postwar generation is wealthier than any before it. But the ultimate value of any investment depends upon being able to convert it into cash and thus generate purchasing power. In fact, the world's accumulated wealth -- around $250 trillion, according to Credit Suisse’s Global Wealth Report -- is almost certainly incapable of realization at its paper value. The headline number thus vastly overstates the supposed savings glut.

Most of these savings are held in two forms: real estate, primarily principal residences, and retirement portfolios that are invested in stocks and bonds.

Both are rising in value. A combination of population growth, higher incomes, increased access to credit, lower rates and, in some cases, limited housing stock have driven up home prices; those who got in early have done especially well. Meanwhile, increased earnings and dividends, driven by economic growth and inflation, have boosted equity values. So have loose monetary policies designed to counteract the Great Recession since 2009.

Yet the appreciating value of one’s own home doesn't automatically translate into purchasing power. A primary residence produces no income. Indeed, maintenance costs, utility bills and property taxes -- which often rise along with home prices -- mean that houses are cash-flow negative.


Secular Stagnation

To monetize one's gains would require borrowing against the value of the property. Those loans cost money to service and expose owners to fluctuations in property values. The property can always be sold, of course. But much of the profit is likely to be eaten up by transaction and relocation costs -- not to mention the cost of a new home, which will also have risen in value.
High property prices depend on there being enough potential buyers who can afford the increasingly large mortgages that have helped boost real estate values over the last half a century. Their number may be shrinking: Stagnant incomes, the decline in secure, long-term employment and rise in contracting jobs all undermine the appetite and ability to borrow. Demographic changes and new barriers to immigration will shrink the size of populations as a whole. Similar considerations apply to real estate investment.

Share prices, on the other hand, represent future rather than current earnings streams. Low interest rates, which have to rise eventually, have artificially increased the discounted value of these cash flows. Much of the gains merely reflect higher PE multiples, not higher revenues and earnings. Slower growth and lower inflation mean future income streams may be weaker.
In recent years, equity valuations have also benefited from the rising share of national income captured by corporate profits, which may be unsustainable. Debt-funded share buybacks and corporate activity that boosts valuations -- including mergers -- may slow. Companies can't repurchase more than a certain level of outstanding shares if they want to maintain their stock-exchange listing and trading liquidity. Mergers eventually may run up against competition concerns.

Fixed-income instruments don't necessarily offer a safe haven. The credit quality of government and corporate bonds has declined. Regulatory changes mean that bank-issued bonds may be written down in cases of financial distress. With investors having assumed more risk to compensate for falling returns, they face increasingly uncertain returns on capital.

An important factor is changing funds flows. Rising wealth, in part supported by forced or tax-incentivized pension savings, created strong markets for financial assets in the postwar era. Now, many aging investors are set to draw down on those savings at the same time to fund their retirement. Given fraying safety nets across the developed world, those withdrawals could well be large -- indeed, greater than new inflows. That will reduce the funds available for investment, as well as demand for property, equities, bonds and other assets.

All this could set off a vicious cycle. Lower asset prices will shrink tax revenues. At the same time, demand for essential services will increase as many find themselves unable to finance their own needs. Fiscal positions will take a hit, resulting in lower government spending and higher taxes. That will only accelerate disinvestment.

The inability to convert investment into cash at current valuations means that individuals may be a lot less wealthy than they assume. They may have to consume less now in order to ensure sufficient cash for future needs, reducing economic activity. Lower levels of wealth also limit policy options for governments and central banks, which rely on mobilizing savings to boost growth and manage high debt levels.

That's perhaps the final irony. Whether real savings are higher or lower than currently believed, the result may be the same: a global economy mired in a prolonged period of stagnation.

-------------------------------------------------------------------------------------------------------------------
Satyajit Das is a former banker, whom Bloomberg named one of the world's 50 most influential financial figures in 2014. His latest book is "A Banquet of Consequences" (published in North America and India as "The Age of Stagnation"). He is also the author of "Extreme Money" and "Traders, Guns & Money."

Monday 19 September 2016

ISR Capital - Like Moths to an Open Flame, this will likely end up in tears again


Moths are attracted to light at night, even if that light is from an
open flame.  If one flies too close by mistake, the moth gets burnt!


     ISR Capital's price surge today brings its PE to more than 500 times!   Astronomical by any standards of measurement.   Like moths to an open flame, this is likely to end up in tears again.   Is this going to be another Blumont even before the investigations are over?

Trading on momentum is extremely risky, so beware.   Has SGX raised any query yet?    One was done on 14 September and they'd better raise another one soon.

Holders of the death spiral convertible bonds will have having a field day in this rally and making a killing.   Buyers may likely be taking over their holdings and stock.

Should one "short" this stock?   Probably no.  It is far too risky likewise, not knowing how tightly the stock is held, or if interested parties will push the share price even higher.

Buyers beware!







Tuesday 13 September 2016

V Holdings Limited (Part 2) - The Berlin Wall Crumbles (A Fictional Story)




The Berlin Wall (German: Berliner Mauer) was a barrier that divided Berlin (West and East Germany) from 1961 to 1989. Constructed by the German Democratic Republic (GDR, East Germany), starting on 13 August 1961, the Wall completely cut off (by land) West Berlin from surrounding East Germany and from East Berlin until government officials opened it in November 1989.   The barrier included guard towers placed along large concrete walls, which circumscribed a wide area (later known as the "death strip") that contained anti-vehicle trenches, "fakir beds" and other defenses. The Wall served to prevent the massive emigration and defection that had marked East Germany and the communist Eastern Bloc during the post-World War II period.   (Source: Wikipedia)















In the game of chess, a defence set-up known as the Berlin Defence became known as the Berlin Wall after it was used to devastating effect by challenger, Vladimir Kramnik in his World Chess Championship match against Garry Kasparov, in which the former won.    The Berlin Defence was so solid that the world champion, Kasparov could find no way through to break-up Kramnik's defences in his games as Black.


Now back to V Holdings Limited.   To support our proposed rights issue, we erected a Berlin Wall at the rights issue price.    Millions of shares on the "buy side" at the rights issue price to support the share price but the selling wave that came was swift and fierce.   Damn... Who are the sellers?!  Our Berlin Wall has crumbled.    What do we do now?  

Time to reload and gather more fire-power.    Need to nudge the share price back up above the rights issue price again.   : (

-----------------------------
Author's Note: This is a fictitious story which was inspired by a dream that the author had in which he was the Financial Controller of a company.



Friday 9 September 2016

V Holdings Limited - The Emperor has No Clothes (A Fictional Story)





In Han Christian Andersen's tale of "The Emperor's New Clothes", the short tale by Andersen tells of two weavers who promise an emperor a new suit of clothes that is invisible to those who are unfit for their positions, stupid, or incompetent. When the Emperor parades before his subjects in his new clothes, no one dares to say that they don't see any suit of clothes until a child cries out, "But he isn't wearing anything at all!".   (Source: Wikipedia)


Your company's stock price is under tremendous pressure due to adverse events happening from outside and within the company.     You need to "ask for more money from your shareholders"  bolster the financial foundation of the company.    So, how to you best convince your minority shareholders to part with their money,  further be involved in the equity of the Company, and allow ...(the Company) to be less dependent on external sources of funding?

Call for a deeply discounted rights issue and your share price will be bashed down further beyond recognition.    No, No, this will not work.

So, why not think out of the box?   Come up with a proposal so unthinkable that shareholders start to doubt themselves instead of the company?    Let them think that it is them who do not understand the merits of a rights issue that is offered to them at a PREMIUM rather than a discount!    Ok... to sweeten the deal, we'll offer them some free warrants which will given to them if they subscribe to the rights issue.

Meanwhile we'd better start pushing up the share price together with our buddies and interested parties so that it rises above the rights issue price.  And make sure as hell that the share price stays that way until the rights issue is over so that minority shareholders will think that this is a good deal that they are getting themselves into.

Will this plan work?   Maybe, maybe not.   But we've got no choice, so we'll have to give it a try.   Even if the rights issue is undersubscribed, we'll get some much-needed funds into our coffers.

Nothing ventured, nothing gained.    "Forture favours the bold" - don't they say?    Unless someone is smart, brave, stupid enough to say:  "Look Ma... the Emperor has No Clothes!"

----------------------
Author's remarks:  This is a fictitious story which was inspired by a dream that the author had in which he was the Financial Controller of a company.