Oxley 4-year 5% Retail Bonds

This may be a little overdue, but since the closing for the applications is on 3 Nov noon, I guess there's still time and purpose for this post. Oxley, a property developer, is offering $50 million in bonds in the public offer and $75 million in placement. The placement bonds are 4 times subscribed. If you want to read more on the details of the issue, you can look here and here. I'm going to analyze the company in this post.

(Image source: oxley.com.sg)

To look at another similar post you can look at the post I did on Aspial's bond issue earlier on. 

I'll start looking at the company from its 2014 Annual Report. The P&L statement seems healthy, with around $300 million in profit last year and $100 million in profit last year. If you're wondering about the large difference, I think it's due to their different revenue recognition method, where they use the recognised on completion of construction method and on stage of construction method, with the former showing a much larger increase than the latter between 2013 and 2014. The company is also making enough to cover its finance costs, which was $32.7 million last year and $8.5 million in 2013.

The balance sheet shows a bleaker picture though, the company has $3.42 billion in assets but only $465 million in equity, with a lot of the liabilities being bank loans (refer below). It also has a lot of development properties, which seem to be mostly in Singapore. The property market isn't doing too well now and the value of these properties may have to be written down in the future. There is a possibility that the company's equity may drop to zero or negative, which is definitely a situation that we would want to avoid as bondholders as we would be taking all the risk of the company but our upside is capped to the 5% annual coupon rate.

(Image source: Oxley 2014 Annual Report)

I wouldn't be too optimistic about the cash flow statement either. The company has not generated cash from its operating activities in 2013 nor 2014 and has been spending on investing as well, using increases in bank borrowings to sustain these. 

I don't think I'll take part in this bond issue. The property market in Singapore has little bright spots currently, so the profits of the company, while currently good, may have to come down and the balance sheet as well as cash flow statement don't inspire much confidence in me that the company may be able to weather a storm. From a bondholder perspective, I think that it is not ideal when the company's equity dips below 0, which as I mentioned earlier, is a possibility that we should not rule out if the value of development properties have to be reduced in the future if the property prices in Singapore decrease. The 5% coupon rate just isn't good enough for me

If you have enjoyed this post and would like to receive notifications on new posts, you can subscribe to my blog via email or like our Facebook page