Home' Trinidad and Tobago Guardian : August 7th 2014 Contents AUGUST 2014 • WEEK ONE www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
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On pages four and five of this
publication, the Business
Guardian carries a story out-
lining the fact that two of
T&T's largest companies have
been successful in issuing ten-year bonds at
rates of below 3.5 per cent.
In May, when TCL went to the international
capital markets, some investors in what is
called the high-yield bond market indicated
to the Claxton Bay-based cement producer
that it would need to pay them an annual
interest rate of over ten per cent (as high as
15 per cent) to get them to buy TCL's US$325
million of senior secured first lien notes---
US$295 million of which was meant to repay
its existing bondholders.
On May 20, TCL said in a notice that it had
decided to postpone the refinancing "and
await more favourable market conditions,
which are expected in the near future."
What accounts for the fact that potential
investors in TCL's debt require them to make
interest payments that are three or four times
higher than a blue-chip local company?
Generally, there is a close relationship
between risk and reward in bond markets. The
higher the risk of owning the debt of company
A, the more the investors in that debt have
to be compensated.
But are rates of 12 to 15 per cent justified
based on the fact that TCL operates within
a regional market that is protected by a 15 per
cent Common External Tariff and in economies
that can be perceived as being past their worst
in terms of dealing with the dread impacts of
the global financial crisis?
In other words, TCL has a captive market,
most of which is past its worst in terms of
Why then would international investors
demand 12 to 15 per cent from TCL, while
local investors were willing to accept less than
3.5 per cent from Massy Holdings and First
Could it be that the TCL board fundamen-
tally misread both the local and international
In its May 20 notice, TCL stated: "In the
first quarter of 2014, the TCL group received
four unsolicited proposals to refinance the
group's US$300 million debt. Three of these
proposals recommended accessing the bouyant
US high yield bond market, which, the group
was advised, had the depth to refinance the
existing debt at lower interest rates, facilitating
improved cash flow and more flexible
"It was also advised that the debt and capital
markets in the Caribbean are too thin to handle
this level of refinancing."
Now it is significant that Massy Holdings
was able to raise the TT dollar equivalent of
US$190 and another large local corporate is
negotiating to raise the TT dollar equivalent
of US$285 million.
And it is also significant that the local bond
market was not too think to accommodate
Massy and First Citizens and TSTT at almost
the same time or that TCL was unable to refi-
nance its debt at more favourable rates and
Would TCL have been better served trying
to raise the $2 billion it needed to refinance
its debt on the local market?
And it could very well be that the interna-
tional high-yield market is now permanently
closed to a company like TCL.
In the last month or so, the international
high-yield market has changed substantially.
Last week Friday, the Reuters report on the
issue stated: "Investors worldwide pulled $4.4
billion out of high-yield junk bond funds in
the week ended July 30, marking a third straight
week of big withdrawals from the funds, data
from a Bank of America Merrill Lynch Global
Research report showed on Friday.
"The latest outflows from funds that hold
the riskier, lower-rated debt brought with-
drawals in the past three weeks to $12 billion,
according to the report, which also cited data
from fund-tracker EPFR Global.
"The high-yield market, which typically
moves in sympathy with equities, has been
on investors' radar after its multi-year rally.
High-profile investors have warned repeatedly
this year that junk securities were trading at
On Monday, Forbes magazine wrote: "Amid
a substantial investor retreat from the market,
US high yield bond issuance dipped to $25.3
billion in July, down from $29 billion in June,
according to S&P Capital IQ/LCD. It is the
smallest monthly tally since the $15.6 billion
recorded in February.
"The activity comes as investors, amid much
talk of a market bubble, are pulling cash from
high yield funds at a rapid clip. During the
month there was a net $5.3 billion outflow
from U.S. funds, largely offsetting $6.5 billion
in cash inflows during the previous six months,
according to Lipper."
The point here is that the risk that some
international investors were willing to take in
the high-yield market may have evaporated---
maybe temporarily and maybe permanently.
Certainly, the argument could be made that
if TCL was unable to raise US$325 million in
May, it would be more difficult now, given the
imminent end to the US Federal Reserve's
quantitative easing programme.
Where does that leave TCL.
The other issue the company has to face is
that its news flow in August 2014 is much
less favourable than it was in May.
It could be that the international bond
investors formed the judgment that TCL was
TCL has two significant dates coming up
that could well have a profound impact on
the company, on the T&T stock market and
on the thousands of citizens of this country
who are invested in the local stock market
(either directly or indirectly, knowingly or
• By tomorrow, it either needs to find $90
million in cash to fulfill an Industrial Court
ruling that it must pay all of its backpay com-
mitments to its unionised workers by August
8, OR it must convince a judge of T&T's
Supreme Court that an injunction stopping
last week's Industrial Court ruling is justified;
• It also has a deadline of 5pm on August
19 2014, which is when the special (compul-
sory) meeting of TCL is due to be held by the
shareholders representing 54.7 per cent of the
issued shares of the company who are trying
to remove six TCL directors: Andy Bhajan;
Bevon Francis, Carlos Hee Houng; Leonard
Nurse; Brian Young and Rollin Bertrand.
How would international bond investors
perceive the fact that the company has to fight
its workers in court (to prevent the company
being forced to pay workers what the local
Industrial Court has mandated) and is likely
to continue fighting its majority shareholders
in court (as it tries to stop the compulsory
meeting of shareholders?
Neither of these legal battles would have
been part of the investor package that TCL
says 500 institutional investors across North
America and the Caribbean received.
What do bond markets
tell us about TCL's fate?
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