November 16, 2015 / 4:06 AM / 2 years ago

Trikomsel restructuring stirs activist investors

* Individual bond investors band together in search for bigger role in restructuring

By Kit Yin Boey

SINGAPORE, Nov 16 (IFR) - Individual bondholders in Singapore are joining forces in a bid to win a greater say in the restructuring of troubled Indonesian telecom retailer Trikomsel, in the latest example of bondholder activism in the city’s domestic market.

A handful of private bank clients and highnet worth investors have invited other holders of Trikomsel’s Singapore dollar bonds to contact them through an anonymous email account. The group hopes to win the support of enough creditors to gain a seat on a bondholder steering committee that will lead negotiations with Trikomsel, according to market sources following the plan.

The move comes after a wave of bond sales targeting wealthy Singapore investors and underlines fears that individual investors have little recourse in the event of a default.

Trikomsel placed almost half of its Singapore dollar bonds through the city’s private banking network. By pushing for a seat at the restructuring table, some investors have signalled that they do not expect their private bank advisers to fight their corner.

“This is the wakeup call for the private bank clients that the market has been waiting for,” said a foreign trader.

High-net worth investors have snapped up Singapore dollar bonds in recent years, allowing several smaller companies and foreign issuers to sell debt for the first time. PB clients relied on leverage to fund as much as 90 percent of their orders. Missed payment That demand is now under threat after Trikomsel in October warned it would be unable to meet its obligations on its two outstanding Singapore dollar bonds - S$115 million ($81 million) 5.25 percent bonds due May 2016 and S$100 million 7.875 percent notes due June 2017. A coupon payment due on the 2016 note on November 10 was not made, prompting Indonesian rating agency Pefindo to drop Trikomsel’s rating to selective default from CCC. A coupon on the 2017s is due for payment on December 5.

Singapore’s local market has not suffered a default since Celestial Nutrifoods missed payments in 2009, and bankers say more distressed cases could emerge if commodity prices remain low.

Trikomsel’s restructuring will be closely watched as a guide to future restructurings, and a prominent role for the group of individual bondholders would set a precedent in the local bond market.

Industry sources say that the bulk of the company’s bonds are now in the hands of retail investors mainly PB clients and end-investors who bought in the secondary market.

Trikomsel, however, has said it is setting up a bondholder steering committee of no more than five representatives holding an aggregate 25 percent of the outstanding principal amount of each of the two bonds. This effectively rules out individual investors unless they hold a substantial amount of the bonds. Instead, individual investors will need to rely on their private bank adviser or a third party to represent their best interests. ‘Big boy letter’ Bondholder activism was almost unheard of in Singapore until two years ago when institutional investors acted in concert against what they felt were unfair terms on a buyback offer from Fraser & Neave. Investors rejected two offers, forcing the conglomerate to sweeten the terms, but those were large funds that could consort and exert combined pressure.

Private banking clients have in the past sought legal recourse, often suing their advisers over failed investments. Their status as accredited investors under sections 274 and 275 of the Securities and Futures Act, however, labels them as sophisticated investors, and previous court cases have fallen flat. A group of individuals dropped their High Court case against the distributors of structured products linked to Lehman Brothers in 2011.

Even without a court case, however, a group of bondholders could still attract a significant amount of attention.

Underwriting banks appear to be growing wary of activism. Credit Suisse, one of the three leads on a S$130m three-year offering from Indonesian shipping company Pacific International Lines on November 4, asked investors to sign a so-called “big boy letter” confirming they understood the risks attached.

In a copy of the letter seen by IFR, investors were asked to acknowledge that they would have the economic ability to meet current and contingent needs, that they had not relied on the leads to buy the notes and would not hold them liable for omissions or misstatements in the offering circular, and that they understood the risks highlighted in the OC.

Such letters are not unusual on deals for private companies with negligible public disclosure, but they are rare in Singapore dollar bonds, and the view that lead managers are moving to protect themselves in case any investments go sour is likely to add to individual investors’ growing mistrust of high-yield bonds.

Trikomsel’s end-investors are also being stung by margin calls. Leverage of as high as 70 percent was said to be given for bonds that are now hovering at a cash price of 25.00 for the 2017s.

The company’s unaudited financial results as of September 30 showed that cash and cash equivalents amounted to 27.7 billion rupiah, a mere $2 million, down from 612.4 billion rupiah at the end of 2014. (Reporting By Kit Yin Boey; editing by Daniel Stanton and Steve Garton)

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