Thursday, July 17, 2014

Unrated Bonds

I like to ruminate about the above a little since during the recent CHC trial, one of the accused, Chew EH brought up the case of GIC investing in tencent,lenovo and Vanke unrated bonds to buttress his case that for CHC to invest (through an investment vehicle owned by Chew) in xtron unrated bonds is ok.

Now, all the three Chinese companies are big well known international names with a profitable business (at least at this point). their bonds may be unrated because they did not want to get a rating for a variety of reasons. But that does not necessarily mean that their bonds are very risky akin the junk bonds prevalent in the market place.Yes, there is risk (as with any investment) but at least they have profitable business and positive cashflow demonstrated over many years to back them up.

However, in xtron case, there is no valid business model, no profit, negative cashflow, almost no invested capital, few or  no fulltime employed personnel etc.

So the comparison is entirely inappropriate, in my view.

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