Senior Credit Analyst, Lucror Analytics

Leonard Law, CFA

Senior Credit Analyst

High Yield Experts

Lucror Analytics

Lucror Analytics is a leading credit and ESG research specialist and a provider of technology solutions for differentiated fixed income strategies. Our roots are in bottom-up fundamental credit analysis with a specialization in high yield corporate credits from Europe, Asia and Latin America. We are one of few research specialists integrating ESG considerations with fundamental credit research through a dedicated ESG platform. Our ESG assessment covers five key criteria: Disclosure, E,S, & G Pillars, Controversies, ESG Impact on Credit and ESG Momentum.

Recognizing the importance and value-add of Factor Investing in fixed income, Lucror developed the Smart Quant Navigator (SQN), an intuitive platform that helps clients devise and implement factor-based strategies ranging from pure quant to active fundamental, with integrated ESG.

Our company has been at the forefront of developments in the fixed income markets, identifying opportunities and consistently delivering new products and value-adding solutions to clients. Lucror has close relationships with the largest and most reputable asset managers, family offices, hedge funds, investment and wealth managers globally.

Credit

In this month’s “In-Focus” section, we discuss Corporate Governance in Chinese Companies. Specifically, we highlight: [1] the nascent development of the Chinese corporate governance regime; [2] the lack of strong external examination/review; [3] different types of Chinese public companies; and [4] Lucror’s approach to assessing corporate governance. The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks, and discussing specific areas of interest in the "In-Focus” section. The Asia Monthly is intended to broaden investors' understanding of the Asian USD high-yield market.

   In this month’s “In-Focus” section, we discuss Corporate Governance in Chinese Companies. Specifically, we highlight: [1] the nascent development of the Chinese corporate governance regime; [2] the lack of strong external examination/review; [3] different types of Chinese public companies; and [4] Lucror’s approach to assessing corporate governance.    The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks, and discussing specific areas of interest in the "In-Focus” section. The Asia Monthly is intended to broaden investors' understanding of the Asian USD high-yield market. 

Asia HY Monthly - Corporate Governance In Chinese Companies - Lucror Analytics

Trung Nguyen

Debt Capital Markets

We view Marble II as “Medium Risk” on the LARA scale. Marble II is the acquisition vehicle that owns 60% of Mphasis, an Indian IT services company that focuses on banking and insurance verticals. Mphasis has a business risk profile that is highly cash generative and low risk, underpinned by a minimum service guarantee from HP and long-standing client relationships (average 12 years). Historical financial performance has been stable, as growth of Mphasis’ direct business offset a large decline in revenue from its previous owner, HP. Going forward, we deem it likely that Mphasis will return to revenue growth, as it is no longer negatively impacted by HP. That said, Marble II's credit profile is weighed down by the structure, with material cash leakage in the dividend upstreaming from Mphasis, as well as the fact that it is controlled by a financial sponsor. Our Credit Bias is “Stable”, as we expect Mphasis' strong fundamentals to improve under the new owners. We view Marble II’s corporate governance as “Weak” on the LAGA scale, primarily due to the lack of transparency at the holdco level (only Mphasis is listed), and the ownership by financial sponsors, which will likely put shareholders’ interests over those of creditors’. These negatives are mitigated to a degree by: [1] GIC having a reputation to uphold; and [2] Blackstone’s track record in the previous HY transaction involving Pactera. During it's ownership of the latter, Blackstone did not take advantage of large carve-outs, especially regarding the ability to leverage and extract cash, and left the company well capitalised. The HTGLOB '21s are yielding 5.7%/5.5%, or a Z-spread of 390/370. We believe the new Marble II Notes will eventually trade inside that spread. That said, given a c. 25 bps new issuer premium, we think the deal may price at the 5.5%-5.75% level, which we view as fair value.

We view Marble II as “Medium Risk” on the LARA scale. Marble II is the acquisition vehicle that owns 60% of Mphasis, an Indian IT services company that focuses on banking and insurance verticals. Mphasis has a business risk profile that is highly cash generative and low risk, underpinned by a minimum service guarantee from HP and long-standing client relationships (average 12 years). Historical financial performance has been stable, as growth of Mphasis’ direct business offset a large decline in revenue from its previous owner, HP. Going forward, we deem it likely that Mphasis will return to revenue growth, as it is no longer negatively impacted by HP. That said, Marble II's credit profile is weighed down by the structure, with material cash leakage in the dividend upstreaming from Mphasis, as well as the fact that it is controlled by a financial sponsor.  Our Credit Bias is “Stable”, as we expect Mphasis' strong fundamentals to improve under the new owners.  We view Marble II’s corporate governance as “Weak” on the LAGA scale, primarily due to the lack of transparency at the holdco level (only Mphasis is listed), and the ownership by financial sponsors, which will likely put shareholders’ interests over those of creditors’. These negatives are mitigated to a degree by: [1] GIC having a reputation to uphold; and [2] Blackstone’s track record in the previous HY transaction involving Pactera. During it's ownership of the latter, Blackstone did not take advantage of large carve-outs, especially regarding the ability to leverage and extract cash, and left the company well capitalised.  The HTGLOB '21s are yielding 5.7%/5.5%, or a Z-spread of 390/370. We believe the new Marble II Notes will eventually trade inside that spread. That said, given a c. 25 bps new issuer premium, we think the deal may price at the 5.5%-5.75% level, which we view as fair value. 

Marble II - New Issue Assessment - Lucror Analytics

Singapore

Marble II Pte. Ltd. designs and develops software solutions. The Company serves customers in Singapore.

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Marble II Pte Ltd (1436769D SP)

Asia HY Monthly - Corporate Governance In Chinese Companies - Lucror Analytics

In this month’s “In-Focus” section, we discuss Corporate Governance in Chinese Companies. Specifically, we highlight: [1] the nascent development...

Lucror Analytics

Marble II - New Issue Assessment - Lucror Analytics

We view Marble II as “Medium Risk” on the LARA scale. Marble II is the acquisition vehicle that owns 60% of Mphasis, an Indian IT services company...

Lucror Analytics

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