Basics on Bond Investments

Basics on Bond Investments

Investors buy bonds to make Money from Interest Income and Capital Gains.

Earning Interest Income is fairly straight forward. Movement in the Bond Prices will either result in Capital Gains or Losses. Investors can sell Bonds in the secondary market if they do not wish to hold it until maturity.

Factors Affecting Bond Prices
1) Interest Rates
2) Credit Quality of Issuer

1) Interest Rates have an inverse relationship with Bond Prices. If interest rates goes up, the Price of Bond drops. This is because Investors will demand a higher return than the coupon rate. They would rather buy a newly issued Bond at a higher yield.

2) The Bond price will sink if the Credit Quality of Issuer deteriorate. If the health of the Company changes from healthy to the verge of bankruptcy, other bond investors are unlikely to buy it from you unless the Bond price drops.

If the bond prices rises, the yield to maturity declines. The bond investors can choose to hold on to the bond and or sell it into the open market to make a capital gain. The bond investor can reinvest the proceeds into another bond with a higher yield to maturity.

Please see http://lionelltp.blogspot.sg/p/bonds.html to know about Bonds.

If you are interested in Bond Investments, please contact me at 90400848 or email to me at tplim1975@gmail.com.

http://lionelltp.blogspot.sg/p/disclaimer.html

Bonds, Fixed Income, Perpetual Notes

Bonds, Fixed Income, Perpetual Notes

Do you feel uncomfortable of the volatility of the stock market?
Are you keen to know more about Fixed Income Investments?

If yes, please see below.

A bond is a debt investment in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate.

To know more about bonds, please see
http://www.moneysense.gov.sg/Understanding-Financial-Products/Investments/Types-of-Investments/Bonds.aspx


The 2 main type of bonds that provide higher yield are:

1) Corporate Bonds
2) Perpetual Securities

Difference between Corporate Bonds and Perpetual Securities.
Corporate bonds are issued by a Corporation and sold to investors. The tenor of the Corporate Bonds are normally range from 2-7 years. The Yield of the Bond depends on the Credit Quality of the Bond Issuer. The Corporate bonds are redeemed by the issuer upon maturity. 

Perpetual Securities are hybrid securities that combine the features of both debt and equity. Perpetual securities do not have a maturity date but can have a callable date. 
The issuer may include step up feature on coupon payments after the callable date, if the issuer may, but is not obliged to redeem the perpetual securities on the callable date.

If the issuer does not exercise the redemption option, you can only exit your investment by selling the perpetual securities in the secondary market.
You will be exposed to market price fluctuations and liquidity risks.

FAQ
1) Is there a possibility that the listed issuer of the perpetual bonds chooses not exercise the option of redeeming the bonds?

Ans: The possibility is always there, but I think the probability is low. The reason is because the perpetual bonds normally have a step up feature on the callable date. If the issuer does not redeem the perpetual bonds, the coupon will be reset at a higher rate which will strain the balance sheet of the issuer.
If the listed issuer does not have sufficient funds to redeem the bonds, the Company will normally attempt to raise funds via new bond and or equity placement, equity rights issue, bank borrowings, and or sell assets.

2) Will the issuer of Corporate Bond or Perpetual notes ever default?

Ans: There is always a possibility. Please do your own due diligence and or consult your financial adviser. Always invest in a viable business and a well managed and well run company. If there is a default, you make not get back anything or your whole capital. Fundamentals of company may change with the economic and external environment.


If you are interested in Bond Investments, please contact me at 90400848 or email me at tplim1975@gmail.com.

Analysing Vallianz Holdings Limited

I think it is very clear to all of us that the oil and gas sectors are undergoing a bear market right now. Companies with big order books and long term chartering contracts are likely to ride out this difficult moment. One of the companies I have been analysing is Vallianz Holdings Limited.

Corporate Profile

VALLIANZ HOLDINGS LIMITED ("Vallianz" and together with its subsidiaries, "the Group") is a provider of offshore support vessels and integrated offshore marine solutions to the oil and gas industry. Headquartered in Singapore, Vallianz serves oil majors and national oil companies worldwide, and focuses on supporting customers' offshore exploration and production operations in shallow waters. With a young and modern fleet of 37 offshore support vessels, the Group has been actively expanding its presence and building its network in the major and emerging offshore markets in Asia Pacific, the Middle East, Latin America and West Africa.

Despite presently tougher market environment, Vallianz Holdings Limited achieved

• Profitable Performance
• Stable Fleet Utilisation Rate
• Stronger order backlog

On 20 July 2015, Vallianz Holdings Limited have negotiated with an average of 10% cut in chartering rates with a National Oil Company. But extended duration of the chartering contracts till 2020 including options.

In December 2014, Vallianz Holdings Limited was awarded a US$97 million time charter to supply a customized Offshore Floating Storage and Supply Vessel to the NOC for up to 5 years. On 13 July 2015, the Group secured a time charter worth up to US$300 million to supply two self-elevating platforms to support the NOC’s offshore oil production activities for up to 7 years.

If you have gone through Vallianz Holdings Limited presentation slides on 12 August 2015, both the charter period for both contracts will start in Q3 2015.

As at July 2015, according to the presentation slides, the total outstanding order book is US$968 million.

Vallianz Holdings Limited have 2 bonds expiring in 2016. They are likely to seek funding through the debt and capital markets to redeem the bonds. As long as there is no contract cancellation, in my opinion, they are unlikely to have funding issues.

Chart: Source Chart Nexus dated 19/10/2015. For Illustration purposes only.

Key Ratios and Data:

NAV US$0.0688

Basic EPS US$0.26

Diluted EPS US$0.25

Order Book as at 31 July 2015: US$968 mil

Generated US$11.1 mil free cash flow in Q2 2015 after completing major capex to drive initial growth

My View:

Earnings growth likely to pickup in Q3 or Q4 2015.

Key Risk: Contract Cancellation, Vessel Delivery Delay

However, do note that the above recent contracts are negotiated and or renegotiated are done when the oil price is lower than the peak.

If you have further queries, you can contact me at 90400848 or email me at tplim1975@gmail.com.

Please let me know if there is any error in my posting as well.

Presentation slides and information are extracted from company announcements from sgx website.

http://infopub.sgx.com/FileOpen/VHL_IR.Presentation.2Q2015.ashx?App=Announcement&FileID=364386

Vested Interest

Lionel Lim
lionelltp.blogspot.sg

Please do read the disclaimers.

http://lionelltp.blogspot.sg/p/disclaimer.html

US Debt Ceiling Alert

Another crisis looms at the beginning of next month, when America will default on its bills unless Congress raises the debt ceiling by November 5.

Please see the link below for more details.
http://www.msn.com/en-us/money/markets/us-debt-ceiling-alert-this-time-its-really-scary/ar-AAfpD7R


My View:
The market may get volatile again during that period. Take Care and Trade cautiously.

Disclaimer:
http://lionelltp.blogspot.sg/p/disclaimer.html

Introducing Share Builders Plan

Introducing Share Builders Plan

Share Builders Plan (“SBP”) is a regular fixed dollar amount investment plan, which enables you to buy shares on a consistent and incremental basis so as to build up a portfolio of securities for yourself eventually. Therefore, you do not need a huge amount of funds to invest in stock market since Share Builders Plan presents an opportunity for you to invest in stock market to buy odd lots at a reduced cost. 

By investing a fixed amount of funds consistently every month over a period of time, your average cost of shares purchased will generally be lower than the average price of the shares over the same period of time. This is possible since with the same amount of funds, you will buy more shares when prices are low and fewer shares when prices are high.

This investment method is known as dollar-cost-averaging, and it is especially useful in hedging against market volatility. With such a disciplined and consistent method, you will eventually build up a portfolio of stocks at a lower averaged cost.

Share Builders Plan can also be used as a form of Regular Savings Plan for retirement planning, saving for your children’s education or aiming to achieve other financial objectives, Regular Savings Plan (“RSP”) could potentially help you reach your goals with peace of mind. RSP is an investment plan that offers a consistent and disciplined means of investment that provides access to stocks and unit trusts with low cost on a monthly basis. It takes advantage of the dollar-cost averaging approach that does not require you to time the volatile market.

The above is extracted from www.poems.com.sg sharebuilders plan website. Please read disclaimers as well.
http://lionelltp.blogspot.sg/p/disclaimer.html

I have also just started this Share Builders Plan for my 2 year old son this year to fund his education. The market is currently volatile and Singapore might undergo a technical recession. Hence I am using the dollar cost average technique to ride out the volatility.

If you are interested in Share Builders Plan and have further queries, please contact me at 90400848 or email to me at tplim1975@gmail.com.