Perennial 4-year 4.55% bonds

Here comes another corporate bond issue, this time from Perennial with its second bond issue. I think I missed out covering the first bond issue late last year, so I'll look through the company's financial statements in this post and see if it's worth investing in.

First, some background to the company. It is a relatively new company, created through a reverse takeover of St. James Holdings in late-2014. After the reverse takeover, the exisiting businesses were spun off while interests in real estate projects, developments and some other entities were acquired by the company.

Moving on to the financials of the company (I'll be using their 18 months ended 31/12/2015 statements). The income statement shows an ok-ish picture. The income of the group is roughly 1.6x the finance costs. but non-controlling interests make up quite a large proportion of the net profit, which may be a concern since we can't go after them in the case the group is unable to pay its debts(then again, the finance costs may also be borne by entities that have large non-controlling interests, so it really can go either way). Fair value gains make up a large proportion of their after tax income as well. Also, the group is mainly in property development and investment, which may be an issue since the property market still hasn't really picked up again in Singapore, so their rents and property sales may be affected.

Their balance sheet is around there as well. Their value of their total borrowings is slightly less than half their total equity, but like in the income statement, there are a lot of non-controlling interests in the equity. Two things to note here. First is that a lot of their assets (including those in associates and joint ventures) appear to be in investment properties or development properties which are mostly located in China and Singapore (some people may view these markets as overpriced and likely to decline soon while others don't so it depends on your view). Another thing is that the company has quite little cash and cash equivalents, which can lead to them taking on more debt for working capital requirements and also if their assets in properties get wiped out, there is little safety net for them to repay the debt since they have little cash.

The cash flow statement further adds on to the point that they have little cash. They are using money in operating activities and for investing, so they had to raise more debt to fund these activities.

While the income statement isn't very strong, I think that the balance sheet is quite strong for Perennial since the net gearing ratio is under half and seeing that it holds interests in some prime properties in Singapore such as CHIJMES and AXA Tower. I'll most likely subscribe to a small amount of this bond since the balance sheet of the company seems quite ok and so should be able to service the interest and pay back the principle at the end of 4 years, but if it were a bond with a longer tenure I would reconsider.

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