Tuesday, October 27, 2015

Oxley 5% bond - Good buy or Goodbye?

I realised that my bond articles are quite widely read. It was quite shocking to see that all my highest read post are bonds - Aspial, Perennial, Frasers, hyflux pref shares (kind of a bond) etc - all of them are up there in the highest number of pageviews throughout the entire history of nearly 10 yrs,  So let me say this in the clearest way possible. You don't just read what others write about bonds and then you decide whether you want to follow. Even if I decide to buy a certain bond, it doesn't mean that it's suitable for you. Even if it's suitable for you, it doesn't mean that you bought the right amount according to your portfolio allocation. Even if you bought the right amount to diversify in your allocation, it doesn't mean you have the holding power. So many unknowns. I'm writing for myself and for my own situation, so please do your own due diligence. At best, this is just a platform for discussing the virtues (or sins) of any particular investment and at worse, I'm just a idiot not knowing what I'm talking about. You should assume and learn towards the latter. I hold no more special knowledge than any of you.

Okay, that should be clear enough.

Oxley, mentioned that they are going to issue bonds of 5% pa for a duration of 4 yrs. The details are as follows:

Issuer and guarantor: Oxley MTN Pte. Ltd is the issuer and Oxley Holding Limited is the Guarantor.
Issue price and board lot: $1 par value, board lot size of 1000
Maturity date: 5th Nov 2019 (4 yrs from now)
Payment: Twice a year, 5th May and 5th Nov every year, from 5th May 2016 onwards until 5th Nov 2019
Credit rating: Unrated
Amount of bonds issued: $125 mil in total with $100 mil for public retail tranche and $25 for institutional investors. Option to increase up to $300 mil in total.

Application: Opens from 27th Oct 2015 9am to 3rd Nov 2015 12 noon. Min $2k and incremental of $1k thereafter

Expected timetable of key events:

The surety of a bond depends on the solvency of the underlying company, so let's take a look at Oxley.

Here's a few pointers:

1. This company has many many bonds, issued at various year and matured at different years ranging from 2015 to 2018. They have a total of $725 million fixed rates notes (i.e. bonds), all listed in the table below:

If you look at bond number 3 and 4 which expiring in 23rd Sept and 6th Nov 2015 respectively, the total amount is $135 + $90 = $225 million. Both are at a rate of 4.75% maturing for 2 yrs. Based on the overwhelming response from the most recent Aspial and Perennial bonds, it seems they are likely to increase the size of the offering. Perhaps the bond is to replace these 2 that are expiring at the end of this year.

Considering that they had been issuing bonds every year since 2013, I think they are also going to issue bonds next year, possibly at a higher rate than 5%, though not necessarily to retail investors. I think they are using a series of bonds/notes to fund their business.

2. The total liabilities to total asset had been dropping steadily since 2011. They are listed in 2010. The TL/TA ratio is shown below.

2012 - 0.90
2013 - 0.89
2014 - 0.86
2015 - 0.85

3. Having debts is okay if they can pay off the debts with their earnings. (The) Boring Investor posted an excellent article that inspired me to pick up my dusty copy of Security analysis again to review the fixed income investing section. Will do that during the holiday season to sharpen my skills. Till then, I'm referring to his clear and concise method of calculating earnings coverage ratio. Any error in calculating it is solely due to my sucky skills at reading financial statements.

Here goes the earnings coverage:

2012 - 8.21
2013 - 15.46
2014 - 12.17
2015 - 3.98

The aim is to be more than 3 times, and Oxley passed in all the years since listing. I would wish for a longer period of listing to see how they performed during the crisis years, but that's the data I have.

4. ROE

I'm not so concerned about ROE, more about the Asset/Equity ratio. You can see that this is really a business that is funded by debts. Dupont analysis of ROE shows us what drives the business forward. Assets/Equity is also known as a kind of financial leverage. As we can see from the total liabilities to assets in point 3, it is dropping, but it's still freaking high.

Conclusion: This is probably more risky (to the bookmakers) than Perennial, based on the yield and duration of the bond. Oxley offers 5% pa for 4 yrs, while Perennial is 4.75% pa for 3 yrs. Perennial don't have a long history to see their results, while Oxley has a history mired in debts and bonds. What's the chances of Oxley defaulting? I don't know, but I think they should be able to repay off their bond debts since it's not floating, so nothing really to do with interest rates. The only problem is whether their business can still do well if we're expecting higher interest rate environment, with the cost of borrowing money to buy property going to be higher, which invariably affects their bottom line.

Man, this is a hard one for me to decide. I'm sitting on the fence for the decision - I really don't know.


AK71 said...

Hi mew ge,

When in doubt, I stay out. ;p

la papillion said...

Hi AK,

Haha, well said well said :) I am quite happy to get into this until I get more and more uncomfortable about this. You're right...should stay away if I am in doubt :)

Retireby35.SgStyle said...

I think the main focus that exists in analyzing debt investments would be revolve around repayment analysis and collateral cover, which basically means how many cents you would get on the dollar if this investment goes into a tail spin. The latter is probably non-existent given for developers, most of its loans are at individual SPV project levels and secured by each project, whereas this particular note issuance seems to suggest that it would be funding to the corporate level. This means that project level financiers get first dibs on any inventory that is not sold out which is ringfenced and secured to that particular project in the event of default and in an enforcement scenario.

Potentially, in order to form a basis for an analysis on potential sources of repayment for real estate developers, a potential way to look at it would be to project the cash release from the development projects at the project level and roughly gauge the amount of cashflow that could potentially be dividend up to the corporate level in order to service its corporate level debt. Theorectically that would be how I might direct my analysis on these real estate debt issuances, but information might be limited, so easier said than done.

Anyhow, a practical potential way to start might be to look at the sell through and project completion rates, together with a qualitative assessment on whether the Company would have the potential to refinance, since that is most likely going to be the means to take out this new debt issuance over the next four years.

You would also want to gauge how much alignment of interest there would be for management / equity shareholders. I.E. whether the managers are the majority shareholders, since they would be first loss and would be heavily incentivized to ensure things go as smooth as possible if their net worth is tied heavily with the fortunes of the Company...

la papillion said...

Hi retireby35,

Your comments is full of new information for me to digest. I probably wouldn't have the knowledge and skillset to perform that kind of level of analysis, nor do I have the information, especially regarding the SPV level kind of data. So you're right, easier said than done, haha

You must be doing these kind of analysis in your daily work ya?

Thanks for the advise on how to approach this, much appreciated!

Singapore Man of Leisure said...


Now you know why I like to gatecrash myself into the company of other shepherds and landowners ;)

It's much more intellectually stimulating than to have a conversation with someone who can only say, "I disagree with you because so and so prominent blogger says so!"

Baa... LOL!

Psst. This young man got gold content backing up his youthful unabashed declaration of FIRE by 35 ;)

I'm quite intrigued by his spiritual awakening. Moving away from goals to processes is a start. I guess the next to resolve is his jitters on "Who am I without a job title?"

And that affects all of us whether we retire at 35 or 65.

la papillion said...


Haha,u dug up his background ;) indeed interesting and not like those financial independent wannabes lol

Thankfully I don't have to wrestle with the identity crisis of not having a title. I'm quite well trained in that haha

SMK said...

Good add retireby35.

Lp, you are about the only sg blogger blogging seriously a lot about bonds.
Good disclaimer.

la papillion said...


Serious ah? Die lah, next time can be James Bond already hahaha

Better do a pre-emptive strike to warn people first :)

Anonymous said...

their new project launch in cambodia is offering 6% nett return. http://bridge-cambodia.com/

The bonds only offers 5.15%. I read the strait times news few days ago saying that the bond is oversubscribed. What do you guys think?

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