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Saturday, 20 October 2018

Temasek T2023 - S$ Bond

Temasek is issuing a 5 year S$ bond at a fixed interest rate of 2.7% p.a. S$200m is available for the public tranche and investors can start applying from S$1,000. The bonds pay interest twice a year and will mature in 2023. The offer will close on 23 Oct 2018 at 12pm. For more information, you can visit

Not sure why Temasek need to show the 4 big ethical groups (Chinese, Malay, India, Others) with "HDB" as backdrop in its offering circular given that it is not a political entity. This is probably to indicate that the retail bonds is for everyone in Singapore (especially those from heartlands?).... In any case, this is the first time the long "over-due" Temasek bonds is available to retail investors here. 

I applaud Temasek's efforts to do this for the retail investors, frankly they don't have to do this as it is much easier and faster just to have an institutional offering (if they really need cash, which they don't). In fact, even HDB is not issuing bonds to retail investors! My own view is that the government or MAS should encourage and make it easier for local T-related corporations to issue bonds to retail investors. 

I will not elaborate on who Temasek is and what they do as these information are easily available. In one short sentence - Temasek was formed by the government in 1974 to manage its investments and its portfolio value has grown significantly since inception to S$308b as of March 2018.

 Default Rates of Corporates

If you look at the table above, Temasek's bonds are rated AAA by both S&P and Moody's. This rating is better than many sovereign ratings! The risk of default, per the table above, is zero. Hence, investors who buy in this bond and basically sleep super soundly at night. 💤 (if insomnia is a problem)

If you are still not convinced about its credit worthiness, the key credit ratios looked pretty healthy from all angles.

Conclusion- they don't really need to issue the retail bonds. 

What type of investors would be suitable?

Given we have determined that default rate is nil, the AAA rated bond is suitable for retail investors with zero risk tolerance and is currently investing in government-linked securities or Singapore Savings Bonds.

Singapore Saving Bonds ("SSB")

The Oct 2018 SSB is paying an average of 2.22% if you hold it for 5 years. In this regard, the 2.7% offered by T2023 is slightly better. Hence if you are considering putting money into the SSB, you might want to try your luck at Temasek T2023 bond.

Investors with higher risk tolerance and is willing to accept a higher return for a lower rating should look at other options. If they are accredited investors, they should look at bonds issued by Temasek-linked companies such as Singapore Airlines or if they can't afford the $250,000 per pop, they can evaluate the Astrea IV Class A-1 bonds that has a face value interest rate of 4.25%. You can refer to the write up on Astrea IV here

For investors who die die must subscribe to T2023, what would be the other considerations?

What are the considerations for investors in T2023 Bonds?
  • You can use your CPF to apply for the bonds - Investors who have no use of the CPF money can use them to apply for the bonds from the CPF OA and "arbitrage" the difference. I will consider doing this since i have a lot of cash sitting inside the CPF Ordinary Account doing nothing anyway
  • You are unlikely to get full allocation - Similar to Astrea IV, you are unlikely to get full allocation as the issue will be over-subscribed. You should get something if you apply but you are unlikely to get full allotment. I would hazard a guess that if you apply for $5,000 or less, you may get what you asked for but anything in excess of $5,000 will likely be cut back
  • Post market liquidity will be marginal - If you have no use for the cash for 5 years, then this will not be a concern, However, if you think that you may need the cash a few years down the road, then you will need to be aware that liquidity may be low as most bond investors are "buy-and-hold" type of investors. The trading volume is likely to be low post issuance
  • A rising interest rate environment may result falling bond prices and US Fed is likely to increase rates in the coming months. Will that have a knock-on effect on interest rates here remained to be seen but the risk is there
Will Mr. IPO be subscribing and what is the chilli ratings?

The placement tranche was "hot" and oversubscribed. I will give it a 3 chillis for the risk-free status but 1 chilli for the 2.7% return as the return is too low for my risk profile

My cash can be put to better use but i may consider using CPF to apply since it is earning a better return than 2.5%

How to enhance my "return" if i intend to apply for the T-Bond?

My friends attended the public seminar on Friday and it was well attended. While there was no refreshment, the "door gift' was a $20 Suntec voucher. That alone is worth 74% of the bond interest of $27 if you intend to apply for $1,000 T-bond. 😂

I have already told you how to "enhance" your bond returns, so now it is polling time! You can poll here.

Saturday, 22 September 2018

Vividthree Holdings Ltd

For Information Only

Vividthree Holdings Ltd ("Vividthree" or the "Company") is placing out 51.8m shares at $0.25 each. The IPO has closed and will be listed on 25 Sep 2018. The market cap based on the IPO price is $83.50 million

Principal Business

The company is founded in 2006 and currently has a presence in Singapore and Malaysia. It is a virtual reality, visual effects and computer-generated imagery studio focused on content production and post-production. 

As part of its business strategies, vividthree intends to build up its digital IP through development of VR products and other immersive experiences. It also intends to expand overseas and make strategic acquisitions. 

Competitive Strengths

Financial Highlights

The Company has been profitable for the last 3 years where revenue grew from $3.9m to $7.06m and net profit as of FY2018 was $2.17m. The EPS based on the enlarged shares is 0.81 cents.

The pro-forma EPS is 0.86 cents and that translates into a PE ratio of 29x. The NAV per share is around 3.82 cents.

This is basically a human capital business. The margins are high but the ability to win deals and retain talents are equally important. 

What I Like about the Company
  • Increased use of VR technology - The use of visual effects is very common in movies nowadays and vividthree was involved in computer-generated imagery works in "Ah Boys to Men" series. The challenge will be winning the projects and the lineage to MM2 Asia should help
  • Creating IP content - The Company will produce thematic tour shows based on IP rights acquired or licensed from 3rd parties. On that front, vividthree is developing a VR thematic tour show based on the film "Train to Busan", which was very well received. This would be the most "exciting" segment if they are able to execute well
  • Profitable - While the listing valuation is high, at least the company is profitable and able to operate on the standalone basis.
Some of my concerns
  • Competitive landscape - The VR business is highly competitive and the ability of vividthree to expand beyond its "ah boys to men" fame will be important for its regional expansion
  • Thematic tour shows not proven yet - The company reminded me somewhat of Cityneon's expansion into different thematic sets by Avengers and they are doing the same with VR thematic shows, starting with popular movies such as Train to Busan. If it is successful, it will create a name and market for itself 
  • Transfer pricing - The Company will have business with its parent, MM2 Asia. While the relationships helps open doors, there could be potential transfer pricing considerations as MM2 Asia is involved in movie productions as well. The ability to deal at arm's length with MM2 Asia related projects will be important. 
  • MM2-related listings - MM2 Asia has been very successful in acquiring and then listing its different business units. Unsual Productions and Vividthree is a series of such spin outs. While i don't want to draw parallels with how Ezra spun out its different units previously, I genuinely hope this "spin out trends" doesn't continue as MM2 Asia is arbitraging the difference between the valuation at which they acquired the companies and subsequently listing these entities 
Mr IPO's view

From MM2 Asia to Unusual Productions, Melvin Ang has a group of "strong" supporters behind him. I envisage the support for vividthree will be similar. Even though the valuation of vividthree is high at 29x, i believe the mm2 "fans" will continue to support him.  

As such, despite the weak sentiment, my "anyhow" guess is that it will be 2 chili rating opening. Good luck to those who had received the shares. 

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