Calling out for Trikomsel bondholders

If you have read the news lately, you would have heard of Trikomsel restructuring their bonds and this post is to spread the word that they are looking for their fellow bondholders to contact them at trikomselbonds@yahoo.com as strength is in numbers for a case like this. 

The bondholders are likely to be accredited investors such as private banking clients with the banks in Singapore or maybe fund houses or institutions etc thus it came as quite a shock initially as this is the first time in 6 years that a SGD denominated bond is seeking a restructure of its bonds which could mean a few things such as no more coupons till the maturity date, extension of maturity tenor, haircut and of course the dreaded loss of principal. 

According to Tradehaven where I read this news, Trikomsel held a meeting with their bondholders today, which could mean the private banks who act as custodians of the bonds and maybe some individual retail bondholders who have this bond registered under their name and lodged with CDP have already heard what actions will be taken and how they will be affected.

I took a look at the bonds that were issued as well as the 2012 - 2014 annual report to suss out what could have been the issue for Trikomsel to take this step of a potential debt restructure.

The first S$115m bond was issued on 10 May 2013, maturing on 10 May 2016 with a fixed interest of 5.25% and the second S$100m bond was issued on 5 June 2014 with the same three year tenor except that the interest was much higher at 7.875% and it would be maturing on 5 June 2017. Both bonds pay out coupons every half yearly.

Funny that the 2012 annual report was only posted on 13 May 2013 so I'm not sure whether any bondholders of the first issue had read the annual report. The purpose of issuing the bonds which by all nature seems very normal, they raise funds (lower cost of financing) to pay off their existing banks loans (higher cost of financing). That works out great for the company but not so much for the shareholders and now the bondholders given the potential loss of coupon and principal because it is non value adding nor does it provide growth of any sort and hence the reason for the higher interest rate given.

Trikomsel did a rights issue (new shares and MCB) in 2012 to acquire PT Global Teleshop so that they can be Indonesia's largest telephone retailer with the largest number of networks. Since the acquisition, sales did jump in 2013 obviously but the increase became less significant in 2014. Perhaps there should be a relook at the profitability of the outlets as this will have an impact on their operating costs which is slightly higher than their finance costs.

Majority of the shareholders are all institutions who have mandatory convertible bonds (MCB) which can only be converted into shares once during conversion period of 13 January 2016 - 13 July 2017 and interest of 3% is paid at the time of conversion. There is no part conversion and it can't be traded or transferred to a conversion and it is a 1:1 conversion.

This probably explains why they couldn't take the action of rights issue since the existing shareholders have this MCB. A close look at the 2014 annual report shows that the shareholders have changed since 2012 as the current public shareholders who own less than 5% shares is a paltry 12.66%.

I was surprised how the shareholding structure had changed since 2009. The first two years (2009-2010) was pretty much the same but 2011 was the start of the changes and since then new shareholders came and old shareholders left. This would seem BAU except that these shareholders own more than 5% each and they don't seem to get a board seat so running of the firm is left to management. I didn't do a search or trace back the UBO behind the new companies so I'm not sure whether its just a new company name but same UBO as the new shareholder.

It is also funny that most of the directors or board members (as stated in 2014 annual report) don't own any shares in Trikomsel and there seems to be no mention of performance being linked to compensation. I don't see any bonuses or share awards or stock options being tied to compensation. Dividends were not paid out since 2013 as they did not meet the conditions of their dividend policy.

In terms of significant agreements and commitments, I noted with interest that there are some expired or expiring purchase or distributorship agreements so I wonder whether they have been concluded and with positive effects for Trikomsel as this will have an impact on their revenue.

Trikomsel has pledged most of their assets such as cash and cash equivalents, accounts receivables, inventories etc to the banks as collateral for their usage of the banking facilities. There is a list of financial and non financial covenants that they have to meet which I think may have been breached thus bond restructuring was deemed necessary as this was the only unsecured debt they have.

I was surprised to see the list of bankers they have and existing or new banking facilities have been extended, renewed at higher interest rates which probably explains the squeeze on their finances. Besides the possibility of having to pay facility fees for renewal, therein lies the issue of having to seek prior written approval of a whole list of actions and one of them is to seek for bankruptcy which I doubt would be the case here for Trikomsel. Some banking facilities were terminated as well and their facilities are mainly in IDR and USD while the bonds are in SGD.

There is a line in the annual report that says that the bonds have a cross currency swap which would only expire upon maturity thus I'm not sure why their derivative liabilities in 2014 are like 4x that of 2013 unless this means they don't somewhat hedge partially of some sort (interest rates and currency) for everything else they do? I'm guessing FX and the less than stellar global and of course Indonesian economy didn't help Trikomsel but I think the signs were there much earlier on and it is anybody's guess what will happen eventually.

I'm not sure whether they have tried other cost cutting measures before coming to this step and if they had not, this would indeed be very upsetting if I am one of the bondholders. I also wonder whether any institutions or corporates own a substantial chunk of the bonds as this would mean more bargaining power for the retail bondholders who can tag along in case of a fight. But would this mean throwing egg at their faces for openly stating that they are affected? As for Polaris Ltd, this would just mean that their associate company is not doing well and for Softbank, it would be an investment given their share ownership of 19.9%. Would Softbank come to the rescue and become a white knight remains closely watched in the days to come. 

Comments

  1. Any follow up on this outcome. I am a bond holder that has no clue what's happening. My Singapore bank that sold be the bond also have no clue. Can you elaborate

    ReplyDelete
    Replies
    1. HI Terry,

      Sorry I must have missed out on this comment. I'm not sure what is the outcome but you should get in touch with the group of fellow bondholders at trikomselbonds@yahoo.com

      Delete

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