Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Greensill Blow Up: Greensill Capital (Greensill) is close to bankruptcy. Greensill’s troubles began when its credit insurer, Bond and Credit Company (BCC), a unit of Tokio Marine (8766.JP), decided to not renew Greensill’s insurance likely given the failures of NMC Health, Agritrade, and BrightHouse that borrowed through the Greensill-backed Credit Suisse Group (CSGN.VX) [Credit Suisse] funds; and *Further Tail Risk: Credit Suisse , GAM Holdings (GAM.VX), Tokio Marine Holdings (8766.JP), SoftBank Group (9984.JP) amongst others are likely to see additional weakness given the growing uncertainties with Greemsill and GFG Alliance. In particular, the allegations of fraud by Bafin and the British Business Bank removing UK government guarantee on COVID-19 lending highlight the increased likelihood of substantially higher losses and other tail risk.

*Greensill Blow Up: Greensill Capital (Greensill) is close to bankruptcy. Greensill’s troubles began when its credit insurer, Bond and Credit Company (BCC), a unit of Tokio Marine (8766.JP), decided to not renew Greensill’s insurance likely given the failures of NMC Health, Agritrade, and BrightHouse that borrowed through the Greensill-backed Credit Suisse Group (CSGN.VX) [Credit Suisse] funds; and *Further Tail Risk: Credit Suisse , GAM Holdings (GAM.VX), Tokio Marine Holdings (8766.JP), SoftBank Group (9984.JP) amongst others are likely to see additional weakness given the growing uncertainties with Greemsill and GFG Alliance. In particular, the allegations of fraud by Bafin and the British Business Bank removing UK government guarantee on COVID-19 lending highlight the increased likelihood of substantially higher losses and other tail risk. 

Credit Suisse – Another European Daisy Chain

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

The pricing of <a href="https://www.smartkarma.com/entities/credit-suisse-group-ag" target="_blank" data-smartkarma-citation="entities:22253:1" rel="noopener">Credit Suisse Group (CSGN VX)</a> bonds does not fully reflect the risks, complexity, and low capitalization of the firms’ underlying business model; nor does it capture potential franchise impairment from increasing reputation risk. The recent suspension of redemptions from certain CS funds is at best an embarrassment and at worst a signal that controls remain in need of considerable attention. This is unfortunate, as CS is highly geared to the business cycle and could outperform peers, if it can get its house in order. However, CS’s long-dated Additional Tier 1 bonds already trade tight relative to the challenges facing the firm. Please see: <a href="https://www.smartkarma.com/insights/credit-suisse-perfection-priced-into-long-dated-at1" target="_blank" data-smartkarma-citation="insights:48461" rel="noopener">Credit Suisse – Perfection Priced into Long-Dated AT1</a>. As such, we place an Underweight recommendation of CS notes.As Credit Suisse aims to increase its Asset Management (AM) business, the firm is caught between a rock and a hard place with its fund investors. CS froze $10 billion of AM funds linked to assets sourced from Greensill Capital. Known as CS Supply Chain Finance Funds, more than 1,000 institutional and professional investors cannot redeem their holdings in these funds. This also affects all pending redemption requests filed prior to the CS announcement of 1 March. This is not the first blemish on CS’s reputation as it has repeatedly stepped-in it over the last few years and we are increasingly concerned that it may not be the last. In this instance, however, there are reputational and fiduciary issues which could have a more detrimental impact on the franchise. Fortunately, CS cited its fiduciary duty in barricading fund redemptions. This irony seems lost in the marketplace.Taken together, this cannot endear investors in Asia to entrust their wealth with the firm. Asia is Credit Suisse’s targeted growth market. Other wealth managers may capitalize on the repeated missteps.  Furthermore, we also note that both CS and <a href="https://www.smartkarma.com/entities/ubs-group-ag" target="_blank" data-smartkarma-citation="entities:22590:1" rel="noopener">UBS Group (UBSG VX)</a> long duration bonds sold-off more than others during last week’s Treasury Tantrum. Bad volatility is not beneficial for CS’ or UBS’ wealth management franchises. However, CS widened by more than UBS and, unlike UBS, it did not tighten enough to offset the price decline. Taken together we perceive CS bonds as being at a greater risk of repricing downwards as the year progresses.

The pricing of Credit Suisse Group (CSGN VX) bonds does not fully reflect the risks, complexity, and low capitalization of the firms’ underlying business model; nor does it capture potential franchise impairment from increasing reputation risk. The recent suspension of redemptions from certain CS funds is at best an embarrassment and at worst a signal that controls remain in need of considerable attention. This is unfortunate, as CS is highly geared to the business cycle and could outperform peers, if it can get its house in order. However, CS’s long-dated Additional Tier 1 bonds already trade tight relative to the challenges facing the firm. Please see: Credit Suisse – Perfection Priced into Long-Dated AT1. As such, we place an Underweight recommendation of CS notes.As Credit Suisse aims to increase its Asset Management (AM) business, the firm is caught between a rock and a hard place with its fund investors. CS froze $10 billion of AM funds linked to assets sourced from Greensill Capital. Known as CS Supply Chain Finance Funds, more than 1,000 institutional and professional investors cannot redeem their holdings in these funds. This also affects all pending redemption requests filed prior to the CS announcement of 1 March. This is not the first blemish on CS’s reputation as it has repeatedly stepped-in it over the last few years and we are increasingly concerned that it may not be the last. In this instance, however, there are reputational and fiduciary issues which could have a more detrimental impact on the franchise. Fortunately, CS cited its fiduciary duty in barricading fund redemptions. This irony seems lost in the marketplace.Taken together, this cannot endear investors in Asia to entrust their wealth with the firm. Asia is Credit Suisse’s targeted growth market. Other wealth managers may capitalize on the repeated missteps.  Furthermore, we also note that both CS and UBS Group (UBSG VX) long duration bonds sold-off more than others during last week’s Treasury Tantrum. Bad volatility is not beneficial for CS’ or UBS’ wealth management franchises. However, CS widened by more than UBS and, unlike UBS, it did not tighten enough to offset the price decline. Taken together we perceive CS bonds as being at a greater risk of repricing downwards as the year progresses.

Credit Suisse: Greensill Sows Reputation Risks, Underweight CS Bonds

Telco/Internet specialist

Kirk Boodry

Redex Research

<a target="_blank"></a>Coupang is by far the leader in one of the most compelling markets for eCommerce globally and one of the most attractive of the Vision Fund portfolio companies. But it is expensive: the $30 max offer price implies a 5x appreciation in value from its last private funding round in 2018 and a FY21 EV/sales multiple of 2.6x almost on par with Amazon which is a global leader in both eCommerce and cloud.  We value Coupang below the range at $26 using a 9-year DCF driven by 17% revenue CAGR and an 8% terminal OP margin.    This report includes our initial forecasts, valuation, a summary of the investment highlights and a list of questions we would ask on the roadshow.<h2>Highlights</h2>Coupang dominates a very attractive eCommerce market.  Korea scores high on two measures of eCommerce predictive success, Internet penetration and population density and Coupang is by-far the leading provider. It helps that global competition has been unable to gain traction whilst traditional retailers are smaller scale relative to other markets.eCommerce demand has accelerated as Covid-19 accelerates augments a secular shift in retail sales to online platforms.  Revenue growth expanded from 71% in Q4 19 to 100% in Q4 20 but expanding growth was a feature through 2019 as well. eCommerce penetration of c. 25% may have nearly doubled in FY20 although some of that demand shift may revert as the impact of Covid-19 fades.The company is flirting with profitability. Operating margins have moved from -30% in FY16 to -4% in FY20 with corresponding improvement in EBITDA (-30% to -3%).  In our model, we assume Coupang breaks even in FY21 although higher share-based compensation and/or higher spending as it puts IPO proceeds to work could extend that.But it is still burning a lot of cash.  Coupang might be close to break-even operationally but it has largely spent the money it received from <a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a>  in 2018. Over the last three years, $2.7bn has gone out the door including c. $800mn in FY20 alone (our measure of operating cash flow).Comparable valuations and relative changes to valuation highlight the premium valuation. <a href="https://www.smartkarma.com/entities/coupang" target="_blank" data-smartkarma-citation="entities:28425:1" rel="noopener">Coupang (CPNG US)</a>  max offer price values the company similarly to Amazon on FY21 EV/sales (2.7x v 2.8x) but the latter is a global leader and not just in eCommerce but cloud too. Similarly, Coupang’s value appreciation from its last private funding and March 2020 lows has outpaced peer group, sometimes significantly.

Coupang is by far the leader in one of the most compelling markets for eCommerce globally and one of the most attractive of the Vision Fund portfolio companies. But it is expensive: the $30 max offer price implies a 5x appreciation in value from its last private funding round in 2018 and a FY21 EV/sales multiple of 2.6x almost on par with Amazon which is a global leader in both eCommerce and cloud.  We value Coupang below the range at $26 using a 9-year DCF driven by 17% revenue CAGR and an 8% terminal OP margin.    This report includes our initial forecasts, valuation, a summary of the investment highlights and a list of questions we would ask on the roadshow.HighlightsCoupang dominates a very attractive eCommerce market.  Korea scores high on two measures of eCommerce predictive success, Internet penetration and population density and Coupang is by-far the leading provider. It helps that global competition has been unable to gain traction whilst traditional retailers are smaller scale relative to other markets.eCommerce demand has accelerated as Covid-19 accelerates augments a secular shift in retail sales to online platforms.  Revenue growth expanded from 71% in Q4 19 to 100% in Q4 20 but expanding growth was a feature through 2019 as well. eCommerce penetration of c. 25% may have nearly doubled in FY20 although some of that demand shift may revert as the impact of Covid-19 fades.The company is flirting with profitability. Operating margins have moved from -30% in FY16 to -4% in FY20 with corresponding improvement in EBITDA (-30% to -3%).  In our model, we assume Coupang breaks even in FY21 although higher share-based compensation and/or higher spending as it puts IPO proceeds to work could extend that.But it is still burning a lot of cash.  Coupang might be close to break-even operationally but it has largely spent the money it received from Softbank Group (9984 JP)  in 2018. Over the last three years, $2.7bn has gone out the door including c. $800mn in FY20 alone (our measure of operating cash flow).Comparable valuations and relative changes to valuation highlight the premium valuation. Coupang (CPNG US)  max offer price values the company similarly to Amazon on FY21 EV/sales (2.7x v 2.8x) but the latter is a global leader and not just in eCommerce but cloud too. Similarly, Coupang’s value appreciation from its last private funding and March 2020 lows has outpaced peer group, sometimes significantly.

Coupang IPO and Softbank Group - A Vision Fund Jewel Emerges but It Is Pricey

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.

In this month's “In-Focus”, we update our study of agency ratings for Asian issuers, analysing ratings transitions for all issuers in the Lucror Asia HY index between January 2014 and the present. 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”, we update our study of agency ratings for Asian issuers, analysing ratings transitions for all issuers in the Lucror Asia HY index between January 2014 and the present.   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 - Asian HY Ratings Transition Study - Lucror Analytics

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/coupang" target="_blank" data-smartkarma-citation="entities:28425:1" rel="noopener">Coupang (CPNG US)</a>, the largest e-commerce company in South Korea with $12.0bn in annual revenue and 14.9m in quarterly active customers, announced the offer price range for its blockbuster IPO at $27.0-30.0 per Class A common share.At the proposed IPO price range, Coupang’s market cap and the post-money EV will be between $46.1-51.2bn and $43.3-48.1bn respectively.

Coupang (CPNG US), the largest e-commerce company in South Korea with $12.0bn in annual revenue and 14.9m in quarterly active customers, announced the offer price range for its blockbuster IPO at $27.0-30.0 per Class A common share.At the proposed IPO price range, Coupang’s market cap and the post-money EV will be between $46.1-51.2bn and $43.3-48.1bn respectively.

Coupang IPO: Significantly Overvalued As a LT Investment & Too Risky To Bet On The Short Term Upside

Japan

SoftBank Group Corp provides telecommunication services.  The Company also operates ADSL (Asymmetric Digital Subscriber Line) and fiber optic high-speed Internet connection, e-Commerce businesses, and Internet based advertising and auction businesses.

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Softbank Group (ADR) (SFTBY US)

Credit Suisse – Another European Daisy Chain

CREDIT SUISSE: Greensill is close to bankruptcy. Credit Suisse , GAM , Tokio Marine, SoftBank and others are likely to see additional weakness...

Thomas J. Monaco

Credit Suisse: Greensill Sows Reputation Risks, Underweight CS Bonds

CS bonds do not fully reflect the risks, complexity, and low capitalization of the firms’ underlying business model; nor do they capture potential...

Hank Calenti, CFA

Coupang IPO and Softbank Group - A Vision Fund Jewel Emerges but It Is Pricey

Coupang's IPO is a win for the company and its largest holder Softbank but the max offer price of $30 is too pricey - we think it is worth closer...

Kirk Boodry

Asia HY Monthly - Asian HY Ratings Transition Study - Lucror Analytics

In this month's “In-Focus”, we update our study of agency ratings for Asian issuers, analysing ratings transitions for all issuers in the Lucror...

Lucror Analytics

Coupang IPO: Significantly Overvalued As a LT Investment & Too Risky To Bet On The Short Term Upside

Coupang the largest e-commerce company in South Korea, announced the offer price range for its blockbuster IPO at $27.0-30.0 per Class A common share.

Oshadhi Kumarasiri

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