Author: Investment Stab

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Differences in investing viewpoints for bonds and equities

Recently, Azalea Group has just released its Astrea IV Class A-1 bonds. It was widely marketed as the debt instrument which provides access to private equity investments. This was definitely confusing (at least for me) and here are the reasons.
Bonds and equities have different long-term investing objectives
Bonds are predominantly debt instruments while equity, regardless private or public, are stake holdings in companies. Debt is primarily raised externally with the purpose of investing in the company’s operations for higher future returns. Interest and loan repayment is required. Debt is classed higher than equity for repayment in the event of a default. While the risk of failure of loan repayment can be mitigated by securing the loan with collaterals (where the collateral can be sold in the event of default), the investment returns are still from the interest payments. Hence, simple judgement of attractiveness of a bond is based on the underlying company’s ability to pay (risk) and the interest rate it is offering (reward). Investors should look for cash flow stability for company’s ability to pay.
Equity funding can be raised internally or externally with the similar purpose of investing in the company’s operations for higher future returns. However, the principal amount invested is not required to be repaid. Investors get their returns from the performance of the company through dividends issued or sales of its shares. As such, the attractiveness of a company’s equity is based on its probability of default (risk) and its business potential and performance (reward).
Why I am confused
While Azalea Group is a Private Equity firm, Astrea IV is a debt instrument which relies on Azalea Group’s cash flow for interest repayment. The attractiveness of this bond should be based on its relative interest rate offered and ifs underlying ability to pay the interest and principal loan amount. If the underlying private equity investments do perform better, the bond investors does not receive further benefits from the interest rate offered. In addition to this, even though Azalea Group is indirectly wholly-owned by Temasek Holdings, the bonds are not guaranteed by Temasek. 
While I understand that the rarity of these private-equity-backed bonds may be the reason of its attractiveness, getting exposure to Private Equity via debt instruments does not resonate well unless the debt instrument has an option to convert into equities or equity-related benefits. A better gauge of bond attractiveness will be to compare its relative default risk and interest rate among other bonds offered in the market.
Conclusion
The Astrea IV bonds have definitely performed well in the light of the positive marketing and its early performance (heavily oversubscribed). The purpose of this post is also not to discount its merits but to offer my 2-cents thoughts of how investors should differentiate the investment perspectives of an equity and debt instrument.

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SGX My First Stock Carnival (AKA Stock FunFair)

SGX will be holding a carnival this coming weekend at Vivo City!This event is suitable for those of you who are wanted to start their investing journey.Join us at this event to learn more about investing and how to start the journey.MOST IMPORTANT THIN…

Get $2 Cashback & More When Watching Avengers

Yes, movie promotions are here, and of course, it is for any movies, not just Marvel The Avengers Infinity War.This promotion is by DBS in conjunction with Golden Village (GV).Simply pay with DBS PayLah App when you buy your tickets at GV’s automated t…

How to Buy Real Estate in Singapore?

Property purchases in Singapore can be some of the most lucrative if done right. However, it is without a doubt challenging. For instance, anyone looking to invest in the property project should understand what it offers in its entirety.
You need to follow a process, and some decisions need to be made early on. Like buying property anywhere else in the world, in Singapore too, owners incur costs like repairs, maintenance, and a commitment.

Do Your Research
Researching the market is a great way to find out what type of properties are available and what you can expect to pay. Prepare a short list of homes that meet your requirements. Your requirements may include things like:

  • The number of bedrooms.
  • The overall size of the home or real estate.
  • Your preferred location.
  • Reoccurring costs associated with the property.

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Usually, it’s better to start your research from the websites of the best property developers. Here is the list of the Top 10 property developers in Singapore, created by https://www.asiapropertyhq.com/property-developers-singapore/ :

  • Far East Organization
  • El Development Pte Ltd
  • City Development Ltd
  • Frasers Centrepoint Ltd
  • MCC Land
  • Qingjian Realty
  • GuocoLand
  • Bukit Sembawang Estates Limited
  • Hoi Hup Realty Pte Ltd
  • CapitaLand

Take the New Futura Condo for instance. If you were considering the condo, you would have to research to determine which size will fit you the best. You’ll also need to determine if you have the required budget for the beach facing view. Other things you’ll need to consider when choosing a condo is if its near to your place of work. Also, what type of maintenance costs you’ll incur.

Types of Properties You Can Buy – Freehold VS Leasehold
When buying property in Singapore, you’ll be faced with a choice between freehold and leasehold. The difference between the two is significant, and so that has influence over the price as well.
Freehold properties can be held by the owner forever or transferred to their kin.
On the other hand, leasehold properties will revert back to the state when the lease expires.
Lots of properties in Singapore are freehold. That means you can own the property for as long as you want and sell it when the time comes.
However, keep in mind that generally speaking freehold properties are 10% – 15% more expensive.

Price Valuation
Before you buy any property, you’ll want to get it valuated. Now even though property price has already been valuated, it is essential to make a comparison. When you compare the costs of this project with others, it becomes easier to estimate how big a loan you can or should get.

You should also consider the total duration of the loan and its subsequent monthly instalments.
Individual borrowers who don’t have an outstanding house loan, the LVL or Loan to Value Limit is 80%.
If the tenure exceeds 30 years or extends beyond the age of retirement of a borrower, then it’s 60% of the property’s value.

Closing the Deal
Once the buyer and seller have agreed on a price, the sale can be completed. Completing the purchase will require paying the seller, and transferring the CT or ‘Certificate of Title’ to the purchaser.
The CT is only issued by the Singapore Land Authority (SLA). It is also proof that you own the property.
Your lawyer then inspects the CT. It is also at this point that the lawyer holds on to the CT.
The next couple of steps are handled by the lawyer. This usually requires that the solicitor holds the CT until legal formalities have been completed. After that, it is surrendered to the SLA, which then reissues a new CT in the name of the new owner.
It takes a total of around ten weeks for the process to complete. If a mortgage has been sought the solicitor lodges a caveat for the property and coordinates with the bank or any other financial institution.
Finally, the mortgage documents are prepared, and the property is officially yours.

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Author: Robert LampPosition: Ghostwriter in New Property Guide, Blogger Email: robertlamp10@gmail.com

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Uber’s Partnership in Recent Years

Biggest news in Singapore yesterday was the merger between Uber’s Southeast Asia wing and Grab. This is not something new. After years of fighting and bleeding money in markets all around the world, Uber decided to try a different route and has been pa…

Infographs about SG Budget 2018 that You Should See

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#ICYMI: Uber has decided to sell majority stake in its Southeast Asian unit to competitor Grab

After years of fighting for dominant market share, Uber has finally throw in the towel and decided to sell Grab a majority stake in its Southeast Asian unit to its regional competitor Grab. This decision will have important effects in the market especially for existing players such as current taxi operators. This trend is not its first as Uber is losing its market share against region-focused players such as Lyft, Didi Chuxing and Grab. A good case study to evaluate its market impacts is China.

China market
Several years before Uber conceded its Southeast Asian territory, it lost its fight in China against Didi Chuxing. The China taxi industry is huge with an estimated of 1.1 billion daily commutes. Even with such market size, the ride-hailing market has since consolidated largely between traditional taxi operators and tech platforms such as Didi Chuxing. Different from Singapore, the China ride hailing market has consolidated with Didi Chuxing being the main player, possessing more than 80% of the market. This could likely be a key movement after Southeast Asia’s consolidation.

Having a monopolistic market as a ride hailer, Didi Chuxing has reigned in on discounts and bonuses for both drivers and consumers. The discount-centric model was unsustainable and the company is transiting back to profit-focused model. Consumers previously attracted by the lower fares are now looking to switch back to taxi operators as they are more affordable comparing to surge pricings. Ridership dropped by 40% for some time after subsidies were withdrawn. Although the national government has lifted regulations governing ride-hailing, local cities implemented their own rules specifying stringent criteria to qualify as a private hire driver. For example, Beijing and Shanghai require all drivers to have a local residence permit before they can drive. This resulted in a significant drop in supply of drivers and indirectly raising the price paid by consumers. Consumers are also finding it more difficult to hail a ride on the app. There is prevalent negative consumer feedback where 81.7% of consumers find it more difficult to hail a ride. As such, consumers are slowly turning back to taxis as a solution. This can potentially increase the growth of China taxi market to moderate as parties look to negotiate deals that will appease the majority.

In the taxi industry, there is strong network effect where consumers tend to look for the largest taxi company as this assures them the least waiting time and highest chance of getting a taxi. Being a taxi driver (potential leasee of the taxi company), it is best to go to the largest taxi company which can reach the largest pool of consumers. This cycle reiterates itself, allowing the taxi company to grow.


The current SG market

Comfort Delgro (CDG) owns the largest fleet size in Singapore of approximately 17,000 taxis or 61% of the market. As a result, it has strong network effect present in the Singapore market. There are also low competition rivalry from other taxi rental companies, as taxi annual fleet growth is capped at 2% enforced by LTA. CDG is likely to remain the largest taxi company in Singapore.

Traditionally, there is low competition from other taxi companies such as SMRT and TransCab. However, when the disruptors entered the market, it has faced structural challenges where Uber and Grab are offering heavily discounted prices to consumers and drivers. In addition, Grab has formed strategic partnerships with other taxi companies, such as Prime and SMRT. This has eroded CDG’s market leadership where its traditional competitors now have a higher combined fleet size.

In response to obtaining the network effect, disruptors also offer steep discounts and incentives, compared to taxi companies, to attract potential drivers or existing taxi drivers. TODAY has reported that at least 3,000 CDG drivers have switched operators [TODAY, 29 September 2017]. CDG has also responded by offering similar discounts to taxi drivers and consumers, increasing its marketing efforts and investing into its booking apps.

The taxi industry also faced an uplift in marketing costs to match the discounts and promotions offered by disruptors to retain its market share. This has extensively eroded the competitive advantage of network effect and increase the overall supply of drivers who can fulfil the need of private transport. These increased its operating costs and squeezed margins, while losing its competitive advantage of network effect. It is now the second largest private transport fleet, behind private hire companies, Grab and Uber. CDG and Uber previously announced a partnership to enhance user experience where Uber can tap on CDG’s existing fleet to boost driver supply. With Uber’s new decision, there is likely to be changes with the partnership and possibly, negative impacts on CDG as Grab nabs more market share.

There are massive synergistic revenue generation from its automotive engineering business with CDG’s taxi fleet. Previously, with high taxi fleet utilisation, CDG enjoys high engineering revenue as more taxis are being brought for maintenance and servicing. CDG also sells diesel to its taxi drivers. However, with Uber and Grab attracting its drivers away, CDG is facing a drain on both businesses as they are highly correlated.


What is unknown now is whether Grab will transit to a profit-focused strategy, similar to what Didi Chuxing is employing. If so, the consumer preference shift might also be witnessed and CDG could prove to be an attractive buy right now. However, only time will tell as Grab is also focusing on its e-payment platform and may continue its discounts to synergise that area. What is known now is that consumers will flock to whoever provides more value for lower prices and who has the biggest coffers to sustain that will survive.

Remember to offer your opinions. 
If you don’t put your two cents in, how can you expect to get change?
Have a feedback? Tell us now! 
Subscribe to us or