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.

Thematic (Sector/Industry)

<p>This is the first in a series of reports on Infrastructure Asset-Backed Securities (IABS) in Asia Pacific. The purpose of this report is to provide an overview of the IABS asset class, which remains relatively new to Asia. An IABS transaction involves a sponsor and/or manager sourcing project and infrastructure loans from originators (i.e. banks), underwriting them and issuing securitized notes backed by these assets to investors. This helps originators recycle their balance sheets, while offering investors exposure to these projects and infrastructure loans in a credit-enhanced format, enabling them to originate more project and infrastructure loans.  For the Asia Pacific region, IABS can help bridge a funding gap for infrastructure financing, which according to the Asian Development Bank (ADB) in 2017, amounts to USD 467bn per annum.</p>
<p>IABS is typically backed by a diversified portfolio of project and infrastructure loans. Long-term investors such as life insurers and pension funds can benefit from matching their long-dated liabilities with longer-dated IABS. An investment-grade credit rating for IABS would also fit into the investment mandates of life insurers, pension funds and asset managers. In addition, investors benefit from instant diversification across projects, sectors and geographies/regions, compared to investing directly in individual loans or projects. Furthermore, the elevated credit profile of a senior tranche minimizes the capital cushion that an institutional investor may need to put up against its investments. Last but not least, IABS offers institutional investors access to an asset class with significant barriers to entry, managed by an experienced collateral manager.</p>
<p>As with any credit product, IABS is not risk-free and, depending on how each IABS is structured, IABS could be exposed to loans without public ratings, concentration risk (in certain sectors, countries, guarantors, offtakers and projects), political risk, operational risk of a collateral manager, counterparty risk from loan participation exposures, and prolonged recovery periods in case of loan defaults. It should be noted that such risks are generally taken into consideration in the ratings process of IABS, either through the credit estimate (i.e. private ratings) assigned to the underlying loans or the stress testing of the loan portfolio and IABS structure.</p>

This is the first in a series of reports on Infrastructure Asset-Backed Securities (IABS) in Asia Pacific. The purpose of this report is to provide an overview of the IABS asset class, which remains relatively new to Asia. An IABS transaction involves a sponsor and/or manager sourcing project and infrastructure loans from originators (i.e. banks), underwriting them and issuing securitized notes backed by these assets to investors. This helps originators recycle their balance sheets, while offering investors exposure to these projects and infrastructure loans in a credit-enhanced format, enabling them to originate more project and infrastructure loans.  For the Asia Pacific region, IABS can help bridge a funding gap for infrastructure financing, which according to the Asian Development Bank (ADB) in 2017, amounts to USD 467bn per annum.
IABS is typically backed by a diversified portfolio of project and infrastructure loans. Long-term investors such as life insurers and pension funds can benefit from matching their long-dated liabilities with longer-dated IABS. An investment-grade credit rating for IABS would also fit into the investment mandates of life insurers, pension funds and asset managers. In addition, investors benefit from instant diversification across projects, sectors and geographies/regions, compared to investing directly in individual loans or projects. Furthermore, the elevated credit profile of a senior tranche minimizes the capital cushion that an institutional investor may need to put up against its investments. Last but not least, IABS offers institutional investors access to an asset class with significant barriers to entry, managed by an experienced collateral manager.
As with any credit product, IABS is not risk-free and, depending on how each IABS is structured, IABS could be exposed to loans without public ratings, concentration risk (in certain sectors, countries, guarantors, offtakers and projects), political risk, operational risk of a collateral manager, counterparty risk from loan participation exposures, and prolonged recovery periods in case of loan defaults. It should be noted that such risks are generally taken into consideration in the ratings process of IABS, either through the credit estimate (i.e. private ratings) assigned to the underlying loans or the stress testing of the loan portfolio and IABS structure.

Infrastructure Asset-Backed Securities: New Asset Class for Asia

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

<p>Asia’s Additional Tier 1 (AT1), Subordinated and high yield Senior Unsecured bonds outperformed higher rated Senior Unsecured notes over the holiday shortened week. Hong Kong-based AT1 issuers led for a second week in a row. Nonetheless, <a href="https://www.smartkarma.com/entities/indiabulls-housing-finance-ltd" target="_blank" data-smartkarma-citation="entities:13086:1" rel="noopener">Indiabulls Housing Finance's (IHFL IN)</a> 6 3/8% coupon 2022 maturity note led overall performance by tightening 56 basis points. This bond continues to trade almost 1300bps over its benchmark bond and is relatively illiquid. Amongst more liquid notes, <a href="https://www.smartkarma.com/entities/bank-of-east-asia-ltd" target="_blank" data-smartkarma-citation="entities:341:1" rel="noopener">Bank of East Asia's  (23 HK)</a> 2024 callable AT1 outperformed while <a href="https://www.smartkarma.com/entities/siam-commercial-bank-pub-co" target="_blank" data-smartkarma-citation="entities:214:1" rel="noopener">Siam Commercial Bank's (SCB TB)</a> 2023 Senior Unsecured bond underperformed. Thailand-based bank issuers dragged high grade Senior Unsecured returns lower.</p><p>Thin markets were directionless over the last week, so we focus on bond performance in this note. For our views on likely Brexit, stimulus, and virus impacts, please see last week’s Bank Credit Weekly: <a href="https://www.smartkarma.com/insights/bank-credit-weekly-fed-spikes-while-the-ecb-sweetens-the-punch-bowl" target="_blank" data-smartkarma-citation="insights:46524" rel="noopener">Fed Spikes While the ECB Sweetens the Punch Bowl</a><em>.</em></p><p><strong>Market Outlook: </strong>Brexit and eventual US stimulus is largely priced into US Treasury and credit markets. Reduced economic activity over the near term from increased virus-related lockdowns may not be fully reflected in asset prices. As such, thin markets may exacerbate price moves over the next two weeks. This may confuse noise for signals. We think it better to fade a further market rally. At the same time, we would avoid extending into any year-end decline.</p>

Asia’s Additional Tier 1 (AT1), Subordinated and high yield Senior Unsecured bonds outperformed higher rated Senior Unsecured notes over the holiday shortened week. Hong Kong-based AT1 issuers led for a second week in a row. Nonetheless, Indiabulls Housing Finance's (IHFL IN) 6 3/8% coupon 2022 maturity note led overall performance by tightening 56 basis points. This bond continues to trade almost 1300bps over its benchmark bond and is relatively illiquid. Amongst more liquid notes, Bank of East Asia's  (23 HK) 2024 callable AT1 outperformed while Siam Commercial Bank's (SCB TB) 2023 Senior Unsecured bond underperformed. Thailand-based bank issuers dragged high grade Senior Unsecured returns lower.Thin markets were directionless over the last week, so we focus on bond performance in this note. For our views on likely Brexit, stimulus, and virus impacts, please see last week’s Bank Credit Weekly: Fed Spikes While the ECB Sweetens the Punch Bowl.Market Outlook: Brexit and eventual US stimulus is largely priced into US Treasury and credit markets. Reduced economic activity over the near term from increased virus-related lockdowns may not be fully reflected in asset prices. As such, thin markets may exacerbate price moves over the next two weeks. This may confuse noise for signals. We think it better to fade a further market rally. At the same time, we would avoid extending into any year-end decline.

Bank Credit Weekly: Asia’s Higher Risk Notes Outperform in Thin Markets

Silver Point

Thomas J. Monaco

Independent Insight Provider

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

<p><strong><em>*Poor US Results:</em></strong> In our latest review of HSBC Holdings’ (5.HK/HSBA.LN) [HSBC] US subsidiary, HSBC North America (HSBCNA), we note that fundamentals continue to worsen – although management seems to hope that no one will notice the poor quality and how managed 3Q20 results actually were. According to the 3Q20 US regulatory report, HSBCNA reported bottom-line results if USD 160.0 mn, a USD 111.3 mn (228.5%) increase linked quarter. 3Q20 results were driven by two factors: a massive loss provision and tax rate decline; </p><p><strong><em>*We Anxiously Await HSBC’s US Departure: </em></strong>According the Financial Times on November 28, 2020, HSBC is considering offloading its entire US retail network - although a full exit from other businesses in the US is unlikely. The recommendation of a US exit is expected to be presented to the board as early as this week, although the Group is scheduled to provide an update on its plans for its French and US businesses in February 2021; and </p><p><strong><em>*HSBCNA Should Be Sold: </em></strong>HSBCNA is a chronic mess, and there is absolutely no need for HSBC to maintain a full commercial/retail banking presence in the US. It cannot earn a positive return under its current structure; credit is again about to fall off a cliff; does not earning; NIMs are among the lowest in the USA; and capital is shortly about to fall below regulatory guidance. Further, the bad acquisitions and regulatory headaches should spur management to cut and run in the US. Knowing HSBC management as we do, they will continue making the same mistakes over and over again. </p>

*Poor US Results: In our latest review of HSBC Holdings’ (5.HK/HSBA.LN) [HSBC] US subsidiary, HSBC North America (HSBCNA), we note that fundamentals continue to worsen – although management seems to hope that no one will notice the poor quality and how managed 3Q20 results actually were. According to the 3Q20 US regulatory report, HSBCNA reported bottom-line results if USD 160.0 mn, a USD 111.3 mn (228.5%) increase linked quarter. 3Q20 results were driven by two factors: a massive loss provision and tax rate decline; *We Anxiously Await HSBC’s US Departure: According the Financial Times on November 28, 2020, HSBC is considering offloading its entire US retail network - although a full exit from other businesses in the US is unlikely. The recommendation of a US exit is expected to be presented to the board as early as this week, although the Group is scheduled to provide an update on its plans for its French and US businesses in February 2021; and *HSBCNA Should Be Sold: HSBCNA is a chronic mess, and there is absolutely no need for HSBC to maintain a full commercial/retail banking presence in the US. It cannot earn a positive return under its current structure; credit is again about to fall off a cliff; does not earning; NIMs are among the lowest in the USA; and capital is shortly about to fall below regulatory guidance. Further, the bad acquisitions and regulatory headaches should spur management to cut and run in the US. Knowing HSBC management as we do, they will continue making the same mistakes over and over again. 

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

Private Capital Markets

GoTo Gojek Tokopedia Tbk PT / Private Capital Markets

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<p><a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ)</a> has bought a further 18% stake in Indonesia's <a href="https://www.smartkarma.com/entities/bank-jago-tbk-pt" target="_blank" data-smartkarma-citation="entities:31094:1" rel="noopener">Bank Jago (ARTO IJ)</a> bringing its total state to 22.16%. The transaction was executed at 1.14x PBV and a significant discount to the last traded price.</p>
<p><a href="https://www.smartkarma.com/entities/bank-jago-tbk-pt" target="_blank" data-smartkarma-citation="entities:31094:1" rel="noopener">Bank Jago (ARTO IJ)</a> has a market capitalization of IDR42.3tn (US$2.9bn), which values Gojek's stake in the bank at IDR9.3tn (US$641m).</p>
<p>Gojek's Indonesia users will in the future be able to open a bank account with <a href="https://www.smartkarma.com/entities/bank-jago-tbk-pt" target="_blank" data-smartkarma-citation="entities:31094:1" rel="noopener">Bank Jago (ARTO IJ)</a> and manage their finances through the <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ)</a> App. </p>
<p>The <a href="https://www.smartkarma.com/entities/bank-jago-tbk-pt" target="_blank" data-smartkarma-citation="entities:31094:1" rel="noopener">Bank Jago (ARTO IJ)</a> deal marks an opportunity for <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ)</a> to capitalize on its vast user base, especially through GoPay, to offer customers digital banking products and other financial services.</p>
<p><a href="https://www.smartkarma.com/entities/bank-jago-tbk-pt" target="_blank" data-smartkarma-citation="entities:31094:1" rel="noopener">Bank Jago (ARTO IJ)</a> has already moved its focus to digital banking, targeting SMEs and retail customers. GoPay also recently received investment from <a href="https://www.smartkarma.com/entities/facebook-inc-a" target="_blank" data-smartkarma-citation="entities:665:1" rel="noopener">Facebook Inc A (FB US)</a> and <a href="https://www.smartkarma.com/entities/paypal-holdings-inc" target="_blank" data-smartkarma-citation="entities:4747:1" rel="noopener">Paypal Holdings (PYPL US)</a>, which also provides a strong backing and the potential for collaboration from two heavyweight foreign investors</p>
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<div>For <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ</a>, this will help it develop a process through which it can work with other banks, as well as providing customers with an increasing array of digital financial solutions.</div>
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<div>The deal also demonstrates that management is focused on building its competitive advantage in Indonesia rather than being sidelined any merger considerations with <a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab (0967655D SP),</a> which seems increasingly unlikely. </div>
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<p>Gojek is also seen to be on the path to profitability, with all its services generating positive margins on a product basis. <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ)</a> also recently received US$150m in new money from <a href="https://www.smartkarma.com/entities/telekomunikasi-indonesia" target="_blank" data-smartkarma-citation="entities:1051:1" rel="noopener">Telekomunikasi Indonesia (TLKM IJ),</a> which represented another heavyweight local shareholder on top of <a href="https://www.smartkarma.com/entities/astra-international-tbk-pt" target="_blank" data-smartkarma-citation="entities:46:1" rel="noopener">Astra International (ASII IJ)</a> and Djarum Group. </p>
<p>We look at the background of the <a href="https://www.smartkarma.com/entities/bank-jago-tbk-pt" target="_blank" data-smartkarma-citation="entities:31094:1" rel="noopener">Bank Jago (ARTO IJ)</a> management team below the fold, which seems well-suited to building this future collaboration.</p>
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Gojek (1379371D IJ) has bought a further 18% stake in Indonesia's Bank Jago (ARTO IJ) bringing its total state to 22.16%. The transaction was executed at 1.14x PBV and a significant discount to the last traded price.
Bank Jago (ARTO IJ) has a market capitalization of IDR42.3tn (US$2.9bn), which values Gojek's stake in the bank at IDR9.3tn (US$641m).
Gojek's Indonesia users will in the future be able to open a bank account with Bank Jago (ARTO IJ) and manage their finances through the Gojek (1379371D IJ) App. 
The Bank Jago (ARTO IJ) deal marks an opportunity for Gojek (1379371D IJ) to capitalize on its vast user base, especially through GoPay, to offer customers digital banking products and other financial services.
Bank Jago (ARTO IJ) has already moved its focus to digital banking, targeting SMEs and retail customers. GoPay also recently received investment from Facebook Inc A (FB US) and Paypal Holdings (PYPL US), which also provides a strong backing and the potential for collaboration from two heavyweight foreign investors

For Gojek (1379371D IJ, this will help it develop a process through which it can work with other banks, as well as providing customers with an increasing array of digital financial solutions.

The deal also demonstrates that management is focused on building its competitive advantage in Indonesia rather than being sidelined any merger considerations with Grab (0967655D SP), which seems increasingly unlikely. 



Gojek is also seen to be on the path to profitability, with all its services generating positive margins on a product basis. Gojek (1379371D IJ) also recently received US$150m in new money from Telekomunikasi Indonesia (TLKM IJ), which represented another heavyweight local shareholder on top of Astra International (ASII IJ) and Djarum Group. 
We look at the background of the Bank Jago (ARTO IJ) management team below the fold, which seems well-suited to building this future collaboration.











































Gojek (1379371D IJ) - Upping the Ante on Financial Services

<p> <strong><em>*Always The Magician: </em></strong>Founded in 2010, Metro Bank plc (MTRO.LN) [Metro] was the first de novo high street bank in the United Kingdom in over 150 years. After a period of rapid growth, Metro ran into some difficulties. Over the years, we have learned never to count out Founder Vernon Hill (former Chair and Founder of former Commerce Bancorp in New Jersey) who always walks between the raindrops. Metro has moved forward with the sale of its mortgage portfolio to Natwest Group plc on December 18, 2020; and</p><p> <strong><em>*Large Capital Gain: </em></strong>The sold Metro portfolio should provide the company with and GBP 83mm gain on sale – representing 42% of market-cap. The sale of 20% of Metro’s loan portfolio also removes Metro’s need to issue expensive MREL debt versus its prior debt guidance issuance of between GBP 200-300 mn. </p>

 *Always The Magician: Founded in 2010, Metro Bank plc (MTRO.LN) [Metro] was the first de novo high street bank in the United Kingdom in over 150 years. After a period of rapid growth, Metro ran into some difficulties. Over the years, we have learned never to count out Founder Vernon Hill (former Chair and Founder of former Commerce Bancorp in New Jersey) who always walks between the raindrops. Metro has moved forward with the sale of its mortgage portfolio to Natwest Group plc on December 18, 2020; and *Large Capital Gain: The sold Metro portfolio should provide the company with and GBP 83mm gain on sale – representing 42% of market-cap. The sale of 20% of Metro’s loan portfolio also removes Metro’s need to issue expensive MREL debt versus its prior debt guidance issuance of between GBP 200-300 mn. 

United Kingdom

Standard Chartered PLC is an international banking group operating principally in Asia, Africa, and the Middle East. The Company offers its products and services in the personal, consumer, corporate, institutional and treasury areas.

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Standard Chartered (STAN LN)

Infrastructure Asset-Backed Securities: New Asset Class for Asia

This is our first report on Infrastructure Asset-Backed Securities (IABS) in Asia Pacific which provides an overview of the asset class, new to Asia.

Bondcritic

Bank Credit Weekly: Asia’s Higher Risk Notes Outperform in Thin Markets

Asia’s AT1, Subordinated and high yield Senior Unsecured bonds outperformed over the holiday shortened week. Thin markets were directionless, so we...

Hank Calenti, CFA

HSBC Holdings Plc – Cut and Run

HSBC HOLDINGS: HSBCNA fundamentals continue to worsen – although management seems to hope that no one will notice the poor quality and how managed...

Thomas J. Monaco

Gojek (1379371D IJ) - Upping the Ante on Financial Services

Gojek's recent move to increase its stake in Bank Jago to 22% signals it intends to move into providing a broader range of financial services.

Angus Mackintosh

Metro Bank Plc – Emrys

METRO BANK PLC: Metro was the first de novo high street bank in the United Kingdom in over 150 years. Metro ran into some difficulties, and moved...

Thomas J. Monaco

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