Asia Fixed Income Analyst

Derek Silva

Credit

Among the lesser-followed names in Asia High Yield, an oil services company would probably not be your first guess to be a model of resilience or continuous growth. But Serba Dinamik Holdings Berhad (SDHB) of Malaysia has both, along with moderate debt leverage, and its 2022 and 2025 bonds both feature double-digit yields too.What’s the catch? Well, in order to sustain the high growth, its cash flow is negative. High working capital, weak cash conversion and high capex are all culprits. Continuing to pay dividends at a 30% payout ratio doesn’t help either. But we find comfort in its successful history of two separate equity offerings (private placements) since its 2017 IPO, and also in the company’s strong banking relationships.  After dropping into the 70s after the first Covid market meltdown, the bonds’ cash price has slowly recovered to the low 90s (2022) and upper 80s (2025). However, we still think there is upside at a cash price of ~94 and yield-to-maturity of 10.6% for the 2022 bonds ($300m size) and cash price of ~86 and 11.1% yield-to-maturity for the 2025 bond ($200m size). Particularly when these bonds are supported by the recent news that Serba Dinamik is using two long-term bank facilities to buy back $100m of both bonds at a discount in a tender offer.

Among the lesser-followed names in Asia High Yield, an oil services company would probably not be your first guess to be a model of resilience or continuous growth. But Serba Dinamik Holdings Berhad (SDHB) of Malaysia has both, along with moderate debt leverage, and its 2022 and 2025 bonds both feature double-digit yields too.What’s the catch? Well, in order to sustain the high growth, its cash flow is negative. High working capital, weak cash conversion and high capex are all culprits. Continuing to pay dividends at a 30% payout ratio doesn’t help either. But we find comfort in its successful history of two separate equity offerings (private placements) since its 2017 IPO, and also in the company’s strong banking relationships.  After dropping into the 70s after the first Covid market meltdown, the bonds’ cash price has slowly recovered to the low 90s (2022) and upper 80s (2025). However, we still think there is upside at a cash price of ~94 and yield-to-maturity of 10.6% for the 2022 bonds ($300m size) and cash price of ~86 and 11.1% yield-to-maturity for the 2025 bond ($200m size). Particularly when these bonds are supported by the recent news that Serba Dinamik is using two long-term bank facilities to buy back $100m of both bonds at a discount in a tender offer.

Serba Dinamik Is Buying Its Own Bonds, Should You Buy Them Also?

Serba Dinamik Holdings Bhd

Serba Dinamik Is Buying Its Own Bonds, Should You Buy Them Also?