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Swiber Holdings Winding Down – Uncertainty is Not Always your Best Friend

Imagine that your Private Banker introducing you to purchase a 4 year corporate bond with a yield of 7.1% in 2013

Then because its a bond, and upon the recommendation of your private banker to do bond leveraging you decide to purchase the bond with 50% leverage at less than 1.5% interest. Your leveraged yield becomes 12.70%.

In a low yield environment for the well heeled, this looks great.

Things will be bad but bonds should be safer than the company’s volatile equity isn’t it?

When you invest you hope for the best. Sometimes, you just don’t want to accept that YOU can be the one that loses.

Swiber is Winding Down

Oil and Gas Player Swiber seems to be winding down.

There is a furry of announcement this morning at 1 am.

Every one is coming after them for money.

And here is the announcement that they have placed an application for provisional liquidation.

Together with that announcement Francis Wong, Executive Director and Vice Chairman, Leonard Tay, the CFO, Nitish Gupta another Executive Director just resigned and “pursue personal interest and opportunities”

Bargain Hunting could be a Dangerous Game

The above is the equity stock price chart for Swiber since 2013.

Someone might have taught you, or you have heard from your friends to buy stocks when they are down and that at some point they should recover.

You ran through some rudimentary “fundamental investing” check and determine the company is “okay”

Imagine the return if you purchase at $0.20, when you look back that the stock price was at $1.10 historically.

In a short span of 10 trading days, Swiber’s price went down from $0.17 to $0.11.

You almost lost 45% in your bargain hunting trip.

And now you wonder if you are stuck in this liquidation.

Bonds are not always Safe and Low Volatile

The bond that I mentioned at the start is a 4 year Not Rated Swiber Bond Maturing next year in 2017.

Fundsupermart, the new retail bond house, allows you to quick glance the details.

Perhaps I was wrong that for a not rated bond, private bankers might not be so gung ho to recommend this. But you could choose to find private banking financing to bond leverage this.

Since the issue of this bond in 2013, the price has fallen to 40% less of its value.

Its yield to maturity starts from 7.1% and progressed to near 100% now!

You might try to bargain hunt just like Greek bonds during the crisis at Jul 2015 when the yield to maturity is 25%.

Here is the total return performance since inception.Note the good yield initially have result in a good performance but things quickly collapsed from there.

Would you choose to hold on to it “hoping” it will turn around, or that this is just “short term volatility”?

Uncertainty is not always an Investor’s best friend

My friend B wrote a price on my previous post on evaluating Frasers Commercial Trust (6.9% Dividend Yield)

He is of the opinion that uncertainty is always our best friend.

Perhaps not many picked up that you need to do deep research which he talked about.

The above two examples with potential commentaries of what you might be thinking when you buy are examples we should tamper with this expectation that uncertainty is our best friend.

In another turn around case like Super Group or SMRT, it would be a different story.

Buying them at high uncertainty might bring you immense profits.

But the flip side in the case of bargain hunting Swiber might yield a different result.

Be greedy when others are fearful. In this case this greed might get to you.

If you have leveraged up for the bonds, at the first sign of trouble, the bankers are likely to margin call you.

I would go so far to say, even if you do deep research, how deep is deep when you are not the owner operator?

In this case, even the owners see the writing on the wall but likely they are also “hoping” things will turn around.

So what is your level of deep work that allows you to eliminate the poor ones from the good ones?

Do you trust your high level contrarian investing style?

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TUB Investing

Thursday 28th of July 2016


If an investor is using Deep Value Contrarian style (like me sometimes), he must be able to understand it is "HIGH RISK, high return" - note the capital letters.

He must also have experience, able to endure the ups and DOWNS (mostly downs) and understand financials as well as the business model.

He must also be able to exit when something goes wrong.

Only by understanding these factors, then should the person go into deep value investing.

Looking forward to your next post!

Regards, TUB Investing


Thursday 28th of July 2016

that is tough work but rather true

Bruce Miller

Thursday 28th of July 2016

You are holding what is euphemistically called a "high equity bond," but is more colloquially (and realistically) called a "junk bond."

It was a reckless act by your banker to sell you such a high-risk investment, unless he carefully explained all the risks to you, and had you sign a written acknowledgement of the risk. I have recent experience of the same phenomenon; my wife's broker has authority to manage her account, and without advising her, he bought a similar bond, which has similarly defaulted. On my advice, she used the word "reckless" in her written complaint.

It was reckless because no small investor should have only one junk bond in his/her portfolio. You are experiencing the reason why. This is rule two of Investing 100. I know nothing of Singaporean law, but you might have recourse against your banker.

Think carefully before you take pennies on the dollar on this bond and run from it. Bondholders are secured creditors of the corporation. They stand second in line to receive its assets. Governments always put themselves first in line. If the company is able to pay the money the government is demanding, what remains will be distributed first among the bondholders. If, and only if, the bondholders are paid in full, including defaulted interest payments, then anything left over goes to unsecured creditors, typically, suppliers and shareholders. When a company collapses, it is not uncommon for bondholders to lose only some money, but not all of it. Occasionally, they are paid in full.

When a company falls into major difficulties, such as liquidation, its bond prices collapse. Check the facts of your current case; if you hang on, you may receive a considerably greater recovery than the current market value of the bond.

Some sophisticated investors buy "distressed" bonds and then receive the recovery on liquidation. If they do their sums right, they can make a lot of money. This is at the very high risk end of the investing spectrum.

By the way, get yourself a new banker.


Thursday 28th of July 2016

Hi Bruce, thanks for the long post. I think i said imagine. I did not suffer from this but I believe there will be folks who was recommended bonds as such and are paying some emotional and monetary penalty from this.

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