Why Some Aunties and Uncles In Singapore May Be Risking Their Wealth

A recent Reuters article that was published by The Edge Markets reported that “Singapore’s aunties and uncles” had piled into a S$200 million retail bond offering last week from property development and jewellery retail group Aspial Corporation (SGX: A30).

The article mentioned that the bonds’ relatively high yield of 5.3% had been a major attraction.

A popular bonding activity

The size of the bond offering from Aspial was initially pegged at S$75 million, with S$50 million to be offered to the public and S$25 million to be offered to institutional investors and other investors with deep pockets. But, the public offer was wildly oversubscribed, with Aspial receiving total applications of S$253.57 million.

As a result, the company had decided to increase the public offering to S$175 million, bringing the total bond offering exercise up from S$75 million to S$200 million. The bonds in the exercise will mature after four years.

Beware of the risks

On the surface, a 5.3% yield for a four-year bond seems like a good deal,  given that some banks in Singapore are offering only 1.0% interest even for a 24-month fixed deposit account.

The problem, however, lies in the risks that investors in Aspial’s bonds – the “aunties and uncles” that Reuters mentioned – may be taking on to gain the 5.3% yield. I’m not going to be delving into the business specifics of Aspial. Instead, I’m just going to go through some simple “screening” of Aspial’s financial information in the following two paragraphs to reveal some of the bond deal’s potential risks

According to the Reuters article, Aspial’s net-debt-to-EBITDA ratio currently stands at 75. Aspial, in responding to the article, had issued a clarification and stated that its own version of net-debt-to-EBITDA is at 30.72 as of 31 December 2015. In my view, a net-debt-to-EBITDA ratio of over 4 can generally be considered to be high, though it may be normal for certain industries to have higher ratios.

In addition, the Reuters article stated that Aspial’s interest coverage ratio is at 0.8 whereas Aspial, in its aforementioned clarification, countered that its interest coverage is actually 1.9. The discrepancy looks to me to be a result of the different way that the interest coverage is calculated, but both numbers – 0.8 and 1.9 – still look low to me. That’s especially so given Aspial’s large debt load as of 31 December 2015 (S$1.305 billion in total borrowings versus just S$327 million in shareholder’s equity).

A Fool’s take

So, in short, Aspial appears to have a high net-debt-to-EBITDA and interest coverage ratio, which may increase the risk that Aspial’s bonds bring to its holders. This may be something for the investors in Aspial’s latest bond deal to think about.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.