Independent Asian Credit Research, Bondcritic

Warut Promboon

Independent Asian Credit Research

Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

Credit

<ul>
<li>A lack of prediction accuracy leads us to advise against investing in risky credits.</li>
<li>We expect up 1/3 of Chinese property developers to either default or negotiate with their creditors and see a few sovereigns running out of cash, following Sri Lanka’s demise. </li>
<li>Shimao's failure to negotiate with its creditors leads us to believe the liquidity situation at many Chinese developers is worse than expected.</li>
</ul>


A lack of prediction accuracy leads us to advise against investing in risky credits.
We expect up 1/3 of Chinese property developers to either default or negotiate with their creditors and see a few sovereigns running out of cash, following Sri Lanka’s demise. 
Shimao's failure to negotiate with its creditors leads us to believe the liquidity situation at many Chinese developers is worse than expected.


Bond Market Monitor: What Shimao’s Default Tells Us

ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Cross Asset Strategy

<div class="content-highlight">
<p>This past week's offering of Insights across ASEAN@Smartkarma is filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up and credit insights.</p>
<p>Please find a brief summary below, with a fuller write up in the detailed section. We also include in the detailed section the past week's relevant discussions in <a href="mailto:ASEAN@Smartkarma" target="_blank" rel="noopener">ASEAN@Smartkarma.</a></p>
</div><h2>Macro Insights</h2><p>In <a href="https://www.smartkarma.com/insights/a-real-electoral-contest-in-singapore-albeit-limited-by-lack-of-physical-campaigning" target="_blank" data-smartkarma-citation="insights:40706" rel="noopener">A Real Electoral Contest in Singapore, Albeit Limited by Lack of Physical Campaigning,</a> CrossASEAN Chief economist <a href="https://www.smartkarma.com/profiles/prasenjit-k-basu" target="_blank" data-smartkarma-citation="accounts:612" rel="noopener">Prasenjit K. Basu</a> zeros in on the prospects for the upcoming Singapore election, where he sees the PAP coming out on top but with major challenges ahead.  </p><p>In <a href="https://www.smartkarma.com/insights/the-race-to-the-bottom-growth-pessimism-increasing-but-still-too-optimistic" target="_blank" data-smartkarma-citation="insights:40647" rel="noopener">The Race to the Bottom: Growth Pessimism Increasing but Still Too Optimistic,</a><a href="https://www.smartkarma.com/profiles/dr-jim-walker" target="_blank" data-smartkarma-citation="accounts:1628" rel="noopener">Dr Jim Walker</a> addresses what he sees as an overt optimistic view of the world and its eventual recovery from multilateral agencies. </p><h2>Equity Botton-Up Insights</h2><p>In <a href="https://www.smartkarma.com/insights/bangkok-dusit-medical-bdms-tb-well-placed-to-treat-the-recovery" target="_blank" data-smartkarma-citation="insights:40689" rel="noopener">Bangkok Dusit Medical (BDMS TB) - Well-Placed to Treat the Recovery,</a> CrossASEAN Insight Provider <a href="https://www.smartkarma.com/profiles/angus-mackintosh" target="_blank" data-smartkarma-citation="accounts:937" rel="noopener">Angus Mackintosh</a> revisits this leading Thai hospital stock as a pandemic recovery play. </p><p>In <a href="https://www.smartkarma.com/insights/matahari-department-store-lppf-ij-opportunity-knocks" target="_blank" data-smartkarma-citation="insights:40855" rel="noopener">Matahari Department Store (LPPF IJ) - Opportunity Knocks?,</a> CrossASEAN Insight Provider <a href="https://www.smartkarma.com/profiles/angus-mackintosh" target="_blank" data-smartkarma-citation="accounts:937" rel="noopener">Angus Mackintosh</a> revisits Indonesia's largest department store operator post a call with the company. </p><p>In <a href="https://www.smartkarma.com/insights/sri-trang-gloves-ipo-trading-riding-on-covid-19-second-wave" target="_blank" data-smartkarma-citation="insights:40843" rel="noopener">Sri Trang Gloves IPO Trading - Riding on COVID-19 Second Wave,</a><a href="https://www.smartkarma.com/profiles/sumeet-singh" target="_blank" data-smartkarma-citation="accounts:4" rel="noopener">Sumeet Singh</a> revisits the IPO of <a href="https://www.smartkarma.com/entities/sri-trang-gloves-thailand-public-company-limited" target="_blank" data-smartkarma-citation="entities:29141:1" rel="noopener">Sri Trang Gloves (STGT TB)</a> in Thailand. </p><p>In <a href="https://www.smartkarma.com/insights/sgx-bolt-on-transaction" target="_blank" data-smartkarma-citation="insights:40816" rel="noopener">SGX – Bolt-On Transaction,</a><a href="https://www.smartkarma.com/profiles/thomas-j-monaco" target="_blank" data-smartkarma-citation="accounts:1716" rel="noopener">Thomas J. Monaco</a> zeros in on the most recent acquisition by <a href="https://www.smartkarma.com/entities/singapore-exchange-ltd" target="_blank" data-smartkarma-citation="entities:1047:1" rel="noopener">SGX (SGX SP)</a> and sees only marginal impact. </p><p>In <a href="https://www.smartkarma.com/insights/accordia-golf-trust-buyout-a-gimme-but" target="_blank" data-smartkarma-citation="insights:40778" rel="noopener">Accordia Golf Trust Buyout... A Gimme But...</a><a href="https://www.smartkarma.com/profiles/travis-lundy" target="_blank" data-smartkarma-citation="accounts:25" rel="noopener">Travis Lundy</a> takes a look at this lingering buyout situation.  </p><p>In <a href="https://www.smartkarma.com/insights/major-accordia-golf-trust-shareholder-has-issues-with-price-process" target="_blank" data-smartkarma-citation="insights:40960" rel="noopener">Major Accordia Golf Trust Shareholder Has Issues With Price &amp; Process,</a><a href="https://www.smartkarma.com/profiles/travis-lundy" target="_blank" data-smartkarma-citation="accounts:25" rel="noopener">Travis Lundy</a> revisits this buyout situation after some telling comments from its major shareholder. </p><p>In <a href="https://www.smartkarma.com/insights/teamg-government-stimulus-should-support-sales-growth" target="_blank" data-smartkarma-citation="insights:40909" rel="noopener">TEAMG: Government Stimulus Should Support Sales Growth,</a><a href="https://www.smartkarma.com/profiles/dr-andrew-stotz-cfa" target="_blank" data-smartkarma-citation="accounts:756" rel="noopener">Dr Andrew Stotz, CFA</a> initiates coverage on <a href="https://www.smartkarma.com/entities/team-consulting-engineering" target="_blank" data-smartkarma-citation="entities:29175:1" rel="noopener">TEAM Consulting Engineering &amp; (TEAMG TB)</a> with a BUY recommendation based on a target price of Bt2.42, implying an upside of 20% from the current share price. </p><p>In<a href="https://www.smartkarma.com/insights/tasco-healthy-demand-from-domestic-projects" target="_blank" data-smartkarma-citation="insights:40823" rel="noopener"> TASCO: Healthy Demand from Domestic Projects,</a> out friends at <a href="https://www.smartkarma.com/companies/country-group" target="_blank" data-smartkarma-citation="companies:965" rel="noopener">Country Group</a> revisits <a href="https://www.smartkarma.com/entities/tipco-asphalt-pub-co-ltd" target="_blank" data-smartkarma-citation="entities:5336:1" rel="noopener">Tipco Asphalt (TASCO TB)</a> after attending the company's analyst briefing, where the company expressed a positive tone.  </p><h2>Sector and Thematic Insights</h2><p>In <a href="https://www.smartkarma.com/insights/osotspa-indorama-strong-operations-amidst-pandemic" target="_blank" data-smartkarma-citation="insights:38510" rel="noopener">Osotspa, Indorama: Strong Operations Amidst Pandemic,</a> our Thai guru writes up two recent company visits to consumer products giant <a href="https://www.smartkarma.com/entities/osotspa-public-company-limited" target="_blank" data-smartkarma-citation="entities:27004:1" rel="noopener">Osotspa Public Company Limited (OSP TB),</a> manufacturer of top-selling energy drink M-150 and liquid Vitamin C C-Vitt and petrochemicals giant <a href="https://www.smartkarma.com/entities/indorama-synthetics-tbk-pt" target="_blank" data-smartkarma-citation="entities:14801:1" rel="noopener">Indorama Synthetics (INDR IJ)</a>, both of which he sees as resilient pandemic recovery plays. </p><h2>Credit Insights</h2><p>In <a href="https://www.smartkarma.com/insights/laos-pdr-twin-deficit-dilemma" target="_blank" data-smartkarma-citation="insights:40916" rel="noopener">LAOS PDR: Twin Deficit Dilemma</a><a href="https://www.smartkarma.com/profiles/warut-promboon" target="_blank" data-smartkarma-citation="accounts:1226" rel="noopener">Warut Promboon</a> initiates coverage of <a href="https://www.smartkarma.com/entities/laos-sovereign-credit" target="_blank" data-smartkarma-citation="entities:29165:1" rel="noopener">Laos Sovereign Credit (LAOS GOVT)</a> (Laos) as a high-yield sovereign credit.</p><p>In <a href="https://www.smartkarma.com/insights/agung-podomoro-land-tear-sheet-lucror-analytics-1c280801-cb38-4f92-9c94-6effca262a5d" target="_blank" data-smartkarma-citation="insights:40845" rel="noopener">Agung Podomoro Land - Tear Sheet,</a><a href="https://www.smartkarma.com/profiles/trung-nguyen" target="_blank" data-smartkarma-citation="accounts:7108" rel="noopener">Trung Nguyen</a> takes a birds-eye view of this Indonesian property developer from a credit perspective. </p>


This past week's offering of Insights across ASEAN@Smartkarma is filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up and credit insights.
Please find a brief summary below, with a fuller write up in the detailed section. We also include in the detailed section the past week's relevant discussions in ASEAN@Smartkarma.
Macro InsightsIn A Real Electoral Contest in Singapore, Albeit Limited by Lack of Physical Campaigning, CrossASEAN Chief economist Prasenjit K. Basu zeros in on the prospects for the upcoming Singapore election, where he sees the PAP coming out on top but with major challenges ahead.  In The Race to the Bottom: Growth Pessimism Increasing but Still Too Optimistic,Dr Jim Walker addresses what he sees as an overt optimistic view of the world and its eventual recovery from multilateral agencies. Equity Botton-Up InsightsIn Bangkok Dusit Medical (BDMS TB) - Well-Placed to Treat the Recovery, CrossASEAN Insight Provider Angus Mackintosh revisits this leading Thai hospital stock as a pandemic recovery play. In Matahari Department Store (LPPF IJ) - Opportunity Knocks?, CrossASEAN Insight Provider Angus Mackintosh revisits Indonesia's largest department store operator post a call with the company. In Sri Trang Gloves IPO Trading - Riding on COVID-19 Second Wave,Sumeet Singh revisits the IPO of Sri Trang Gloves (STGT TB) in Thailand. In SGX – Bolt-On Transaction,Thomas J. Monaco zeros in on the most recent acquisition by SGX (SGX SP) and sees only marginal impact. In Accordia Golf Trust Buyout... A Gimme But...Travis Lundy takes a look at this lingering buyout situation.  In Major Accordia Golf Trust Shareholder Has Issues With Price &amp; Process,Travis Lundy revisits this buyout situation after some telling comments from its major shareholder. In TEAMG: Government Stimulus Should Support Sales Growth,Dr Andrew Stotz, CFA initiates coverage on TEAM Consulting Engineering &amp; (TEAMG TB) with a BUY recommendation based on a target price of Bt2.42, implying an upside of 20% from the current share price. In TASCO: Healthy Demand from Domestic Projects, out friends at Country Group revisits Tipco Asphalt (TASCO TB) after attending the company's analyst briefing, where the company expressed a positive tone.  Sector and Thematic InsightsIn Osotspa, Indorama: Strong Operations Amidst Pandemic, our Thai guru writes up two recent company visits to consumer products giant Osotspa Public Company Limited (OSP TB), manufacturer of top-selling energy drink M-150 and liquid Vitamin C C-Vitt and petrochemicals giant Indorama Synthetics (INDR IJ), both of which he sees as resilient pandemic recovery plays. Credit InsightsIn LAOS PDR: Twin Deficit DilemmaWarut Promboon initiates coverage of Laos Sovereign Credit (LAOS GOVT) (Laos) as a high-yield sovereign credit.In Agung Podomoro Land - Tear Sheet,Trung Nguyen takes a birds-eye view of this Indonesian property developer from a credit perspective. 

The Week that Was in ASEAN@Smartkarma - Singapore's Election, Thai Hospitals, and Rubber Gloves

<p style="text-align: justify;">We initiate our coverage of <a href="https://www.smartkarma.com/entities/laos-sovereign-credit" target="_blank" data-smartkarma-citation="entities:29165:1" rel="noopener">Laos Sovereign Credit (LAOS GOVT)</a> (Laos) as a high-yield sovereign credit. In this report, we review the country’s macroeconomic and institutional performance against its selected “B”-rated Asian peers including Cambodia, Mongolia ( <a href="https://www.smartkarma.com/entities/mongolia-government-international-bond" target="_blank" data-smartkarma-citation="entities:28351:1" rel="noopener">Mongolia Government International Bond (MOGOL GOVT)</a>), Papua New Guinea, Sri Lanka ( <a href="https://www.smartkarma.com/entities/sri-lanka-government-international-bond" target="_blank" data-smartkarma-citation="entities:28349:1" rel="noopener">Sri Lanka Government International Bond (SRILAN GOVT)</a> ), and Tajikistan ( <a href="https://www.smartkarma.com/entities/tajikistan-sovereign-credit" target="_blank" data-smartkarma-citation="entities:29166:1" rel="noopener">Tajikistan Sovereign Credit (TAJIK GOVT)</a> ) to identify severe problems Laos is facing, including the credit rating downgrade risk. We will follow-up with a subsequent report on the country’s and its state-owned enterprises’ international bond relative value comparisons with our recommendations in due course.</p>
<p style="text-align: justify;">We found that servicing Laos’ external debt in 2020 and 2021 will be challenging and costly. Laos government’s external debt service repayments amount to &gt;USD1.1bn over the next three years (USD1.2bn in 2020). On the other hand, the country’s foreign reserves have been low, standing at ~USD1bn in recent years (equivalent to &lt; one month of imports), which was below Laos’ 2020 external debt service obligations. Laos’ large chronic fiscal and current account deficits will make the government even more reliant on international capital markets to refinance its rising external debts, in our view.</p>
<p style="text-align: justify;">Although Laos has so far avoided a major health crisis stemming from the COVID-19 outbreak, we expect the pandemic to reduce tourism activities and remittances, which will adversely affect Laos’ twin deficits. Besides the USD150mn 6.875% 06/21 bond issuance in December 2019, the government reportedly plans to place another issuance in 2020 to refinance its maturing debt. We expect the macroeconomic vulnerabilities compounded by the heightened risk in the global financial market amid the COVID-19 pandemic to render Laos’ access to external financing more uncertain and costly.</p>
<p style="text-align: justify;">On 24-April, Fitch revised Laos’ “B-“ rating outlook to negative. Two months later, Moody’s followed with a placement of Laos’ “B3” sovereign ratings under a downgrade review. On 28-June 2019, Thai Rating and Information Services (TRIS) downgraded Laos’ senior unsecured credit rating to “BBB” from “BBB+” on a national scale. Such rating activities will further restrain the country’s capability in raising new debt to refinance its maturing external debt going forward.</p>
<p style="text-align: justify;">Our negative outlook on Laos PDR reflects a debt maturity wall in the next three years vs. a credit rating downgrade risk by one notch later this year on (1) a failure to proceed on negotiations on its debt restructuring with key creditors, a discussion on the Debt Service Suspension Initiative announced by the G20<a href="#_ftn1" target="_blank" rel="noopener">[1]</a>, or a search for a joint donor support program, and/or (2) rising debt servicing costs should the country manage to secure financing this year.</p>
<div>
<br clear="all"><hr align="left" size="1" width="33%">
<div id="ftn1">
<p><a href="#_ftnref1" target="_blank" rel="noopener">[1]</a><a href="https://www.worldbank.org/en/topic/debt/brief/covid-19-debt-service-suspension-initiative" target="_blank" rel="noopener">https://www.worldbank.org/en/topic/debt/brief/covid-19-debt-service-suspension-initiative</a></p>
<p> </p>
</div>
</div>

We initiate our coverage of Laos Sovereign Credit (LAOS GOVT) (Laos) as a high-yield sovereign credit. In this report, we review the country’s macroeconomic and institutional performance against its selected “B”-rated Asian peers including Cambodia, Mongolia ( Mongolia Government International Bond (MOGOL GOVT)), Papua New Guinea, Sri Lanka ( Sri Lanka Government International Bond (SRILAN GOVT) ), and Tajikistan ( Tajikistan Sovereign Credit (TAJIK GOVT) ) to identify severe problems Laos is facing, including the credit rating downgrade risk. We will follow-up with a subsequent report on the country’s and its state-owned enterprises’ international bond relative value comparisons with our recommendations in due course.
We found that servicing Laos’ external debt in 2020 and 2021 will be challenging and costly. Laos government’s external debt service repayments amount to &gt;USD1.1bn over the next three years (USD1.2bn in 2020). On the other hand, the country’s foreign reserves have been low, standing at ~USD1bn in recent years (equivalent to &lt; one month of imports), which was below Laos’ 2020 external debt service obligations. Laos’ large chronic fiscal and current account deficits will make the government even more reliant on international capital markets to refinance its rising external debts, in our view.
Although Laos has so far avoided a major health crisis stemming from the COVID-19 outbreak, we expect the pandemic to reduce tourism activities and remittances, which will adversely affect Laos’ twin deficits. Besides the USD150mn 6.875% 06/21 bond issuance in December 2019, the government reportedly plans to place another issuance in 2020 to refinance its maturing debt. We expect the macroeconomic vulnerabilities compounded by the heightened risk in the global financial market amid the COVID-19 pandemic to render Laos’ access to external financing more uncertain and costly.
On 24-April, Fitch revised Laos’ “B-“ rating outlook to negative. Two months later, Moody’s followed with a placement of Laos’ “B3” sovereign ratings under a downgrade review. On 28-June 2019, Thai Rating and Information Services (TRIS) downgraded Laos’ senior unsecured credit rating to “BBB” from “BBB+” on a national scale. Such rating activities will further restrain the country’s capability in raising new debt to refinance its maturing external debt going forward.
Our negative outlook on Laos PDR reflects a debt maturity wall in the next three years vs. a credit rating downgrade risk by one notch later this year on (1) a failure to proceed on negotiations on its debt restructuring with key creditors, a discussion on the Debt Service Suspension Initiative announced by the G20[1], or a search for a joint donor support program, and/or (2) rising debt servicing costs should the country manage to secure financing this year.



[1]https://www.worldbank.org/en/topic/debt/brief/covid-19-debt-service-suspension-initiative
 



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Laos Sovereign Credit (LAOS GOVT)

Bond Market Monitor: What Shimao’s Default Tells Us

Shimao's default indicates the property credit crisis in China is not over yet. We are also worried on upcoming EM sovereign defaults in Asia.

Bondcritic

The Week that Was in ASEAN@Smartkarma - Singapore's Election, Thai Hospitals, and Rubber Gloves

This past week's offering of Insights across ASEAN@Smartkarma is filled with another eclectic mix of differentiated, substantive and actionable...

Angus Mackintosh

LAOS PDR: Twin Deficit Dilemma

We initiate our coverage of Laos Sovereign Credit (LAOS GOVT) (Laos) as a high-yield sovereign credit. In this report, we review the country’s...

Bondcritic

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