I have the opportunity to invest in a new bond issue that is yielding ~7.7% for a 6 year maturity. It's for a holdco in Singapore with stakes in diversified assets: bank, media company, chemicals company, food/dairy, etc.
The company's currently rated BB-/B by S&P. I'm not a debt investor, so would like your opinion on what I should think about or look into to conclude as to whether the yield on offer is fair or not. In general, would you say this is a good market to buy an EM bond relative to opportunities in US bonds/equities?
Not up to date anymore on current yield levels across EUR&USD bond corps, but for someone to give any insight you should mention the currency of the bond
Sure, it's USD
You’d lend to a foreign conglomerate at the holdco level, probably unsecured with no covenants, for only 8%…?
That’s why I’m asking. I’m not a debt investor. I just get offered these bonds by my bank from time to time as a retail client.
They are unsecured at holdco level, correct. How should I think of what a fair yield is? It’s Singapore, the business is backed by a very wealthy family connected to the govt, and the underlying assets are very diversified and #1-3 market position in their respective verticals. A couple of the assets are bleeding cash, but the majority are blue chip and stable.
You’d read a post politely asking for advice only to write a belittling post expressing your disbelief? Thanks for 0 contrib
To above poster - consider that average high yield bonds are 8% YTM and likely are subsidiary/direct path to collateral in domestic areas and potentially have secured liens with a bunch of incurrence covenants. I think for this issue you should seek to add more lender protection (prevent them from taking on too much debt or doing restricted payments like dividends or moving collateral into new offshore subsidiaries). Not sure what comparable credits are but probably T+600 or closer to 9%+ rates.
Thank you! Makes total sense. I’m a small retail investor relative to the size of the issue which is $600 million, so I have no leverage on terms. I have to take it as is or leave it. Now considering that the majority shareholder in the holdco is that wealthy family that is also connected to government and which will pump in money in case of any liquidity issues, would that change your view on the riskiness of the debt? In other words, if there is a 99% chance that the debt is backstopped by a highly incented shareholder, would that alleviate the issues you raised?
Astrea VII? Yeah sounds about right
Spreads will blow out in a downturn, and you'll be able to pick up better domestic HY credits that trade wider when it does happen. Also as rates continue to rise there is a small bit of duration risk (not much, but you need to take a view here on rates and apply that to your scenarios). Fixed income is all about capped upside and relative returns, and making assumptions regarding how rates/ the curve will behave through your holding period - as others said you can probably get better risk yielding 8% elsewhere
And this is exactly why active FI managers are key to grabbing alpha. Deep research and the scale to create terms is key. This will become a very attractive FI market relative to equities for some time (if you know what you're doing.)
Is there like a VIC forum for bonds/FI?
Rerum exercitationem in odit quaerat. Eos modi sint et ratione omnis.
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