Tuesday, October 27, 2015

My Thoughts On The Oxley Bonds Issuance at 5% Coupon Rate

Oxley is a relatively well known developers amongst the retail scene and they are the latest corporate to tap into the retail bond market by issuing a $125m with an option to increase to $300m depending on public interest. Going from the look of what their past retail bonds issuance is like and the public interest, it seems like the full allotment will be taken up.

They are not new to the scene as you can see below how their past bonds issuance have shaped up and organized over the years in terms of maturity spread out. In fact, we have a couple of issuance below that are yielding higher than what they are offering today at 5% with the same terms and conditions, so I am a little surprise that the offer was not higher because we are certainly closer to the day where interest rates would go up.

These types of senior unsecured bonds take precedence over the other debt obligations in the event of default and they offer relatively easier entry for access of funds than bank borrowings, where they had to meet some stricter criteria or asset pledge especially if the company credit is unrated.

With the way Oxley has set up the MTN, it appears easy for them to tap onto the retail market should they require funding. When one borrowings are due during maturity, all they need to do is to conduct some financial engineering and pushes the debt by using the proceedings from the latest issuance to repay the bonds that are due. This is a very common practice we see in corporations and they are always doing this either with MTN or bank loans. The only problem with the latter is that interest rates are floating so their interest expense can be unpredictable.
Oxley's CEO is a very aggressive person and the company is on the verge of expanding its footprint overseas in projects that could make or break. The company's net debt over the years have been ballooning and the latest gearing they had on their books was still at 3.18x (down from 4.92x last year). For the purpose of comparison, Wing Tai's gearing was at 0.10x net debt while Ho Bee is at 0.56x. In this regard, Oxley gearing is still extremely high by any standards.
I don't think Oxley is going to go bust or default on their bond payment as their quality assets would enable them to obtain financing, although the very high gearing does present some risk to risk averse investors out there. For me, the 5% coupon just isn't attractive enough to entice me to put my money, especially not when I believe the interest rates are going to increase in the near future and we might see more corporations issuing a higher coupon rates on a better condition.


  1. A big thank you to B. I know what to do now.

  2. Interesting write up. One thing I wanted some clarity on - what do you mean by MTN bonds which are senior unsecured would take precedence over the other debt obligations in an event of default? Are you saying that these MTN bonds are more senior ranking than all other debt instruments in the capital structure?

    1. Hi RB35

      MTN bonds are usually classified under more senior than lower debentures form of borrowings, though they are usually less secured than those fixed loans you get from the banks because you need to pledge your assets to. But yes, they are all a form of ranking in the capital structure in the event of liquidation.

  3. Hi B,

    I am easier to be satisfied than you. 5% is good enough for me and I may consider to submit a bid.

  4. In its present state and offered yield, bond buyers are overly enthusiastic.

  5. This bond is worth a stag. You might get 1% percent return for buying and selling on first day.

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