Convertible Bonds + Bye Bye LTC!

Zero posts in the past few weeks, and for good reason too. Phew. I’ve been busy working on the convertible bond offering, and finally, I’ve some tangible results to show for it.

As I was discussing with a friend, life is really funny sometimes. Sometime ago, I was looking for potential co-investors and not getting much headway after meeting many different folks. Barely a week later, I’m now kinda flooded and am not really looking for any more capital.

There’s a limit to the amount of convertible bonds that’s allotted to me anyway. I have to keep some for myself afterall. It’d be weird if all my co investors end up getting a larger share of the pie than me. Don’t think they’d feel very safe with that arrangement either.

So that’s how life is like sometimes. Nothing actually happens for a long while, and when it happens, it all happens. I’m also kinda surprised that there’re a couple of accredited investors who have contacted me following the previous post. I really wasn’t expecting that. I just mentioned it in passing. In any case, even if it didn’t work out, it’s always nice to have met with, and made friends with, like minded investors.

But it also tells me that there’re some folks out there who are reading SG TTI, but perhaps errr, find it…. inconvenient to comment or share their thoughts publicly because of their visibility.

I’ve always suspected so.  Now, I know.

Please email me comments and thoughts though (thumbtackinvestor@gmail.com), I promise everything will be P&C unless otherwise approved.

Anyway, that’s the beauty of investing. There’s always something around the corner, something’s always happening, and if it comes our way, at the right time and with the right team……. the sky’s the limit. In Buffett’s words, you don’t have to swing at every pitch, just the right one.

So this represents kinda the major change in SG TTI’s personal portfolio: I’ve set aside around $500k – $600k for this pre-IPO convertible bond. I’ve vaguely written about it some time ago:

Today, I’m Going To Talk About Private Equity – TTI’s Personal Experience

PE Moving On To Pre-IPO; TTI’s Projected Returns: 1,000% Within 10 years.

1Q 2018 Report Card

This means that for the next 1.5yrs – 2yrs, this $500k will be a drag on my portfolio performance, since it doesn’t generate an immediate return and all coupons will be accrued. Upon vesting at IPO though… oh my, I think (and hope) there’d be some fireworks.

I’d be pretty pleased if the performance on the 1st trading day matches that of Asian Healthcare Specialists: closing 48% above it’s IPO price!

https://www.businesstimes.com.sg/companies-markets/asian-healthcare-specialists-and-slb-debut-above-ipo-prices

As mentioned earlier (PE Moving On To Pre-IPO; TTI’s Projected Returns: 1,000% Within 10 years.), my horizon is much longer, and I’m willing to hold, but it sure wouldn’t hurt at all if the 1st trading day’s performance is like that.

All my co investors will be smiling from ear to ear. I think many people will buy me many lunches then.

Using Asian Healthcare Specialists (AHS) as a comparison, our growth story is going to be much stronger than AHS’s. Much of their raised capital is going towards “working capital” whereas most of ours will go towards M&A and growth.

They are a local story, we’re already regional, and will eventually be pan Asia (that’s not going to be in the IPO prospectus, but the expansion is already well underway).

AHS had no public tranche and only 337 placees got shares (https://www.businesstimes.com.sg/companies-markets/asian-healthcare-specialists-shares-fully-placed-trading-on-catalist-to-commence). Well, our public float will likely be minimal (<20%) with most of the support for the IPO coming from insiders and/or related personnel.

Strong similarities there.

Anyway, congrats to Ho Bee Land chairman and CEO Chua Thian Poh. His 4.6million shares would’ve seen a niffy return in a relatively short time frame, and I think, this is just the beginning for AHS.

Ah well, that’s how it works. That’s how the rich get much richer. Access + opportunity + guts.

I guess I’d come back and update this exciting part after 1.5yrs.


In completely unrelated news……. ever wondered how the government comes up with corporate statistics and projections on stuff like corporate capital expenditures in the coming year, on business sentiment, amount of cross border investments etc?

By forcing requesting companies fill in surveys like this:

733) fund managers.jpg

Yup. That’s for my privately held investment holding company.

And tbh, it’s quite a $%#$%@#% irritant. This is the 3rd freaking survey I’m asked to respond to in the past 12 months (I think, maybe more).

OK, it’s not addressed to me, it’s addressed to my investment holding company, but in a small holding company, the person responding to such surveys isn’t my secretary or my PA, cos… she doesn’t exist.

It’s me.

Or any one of the other directors. Or my accountant. (If I could get the cleaner lady to respond, I would….)

And responding to surveys takes time. And effort.

And in the corporate world, anything that takes time and effort, costs $$$.

So you can see why I find this a complete nuisance.

Oh, why don’t I just ignore it you say? Surveys are supposed to be volunatry isn’t it? Well, cos I really did just that once before, and received a few reminder emails AND calls! And when I ignored the calls, they called my accountant!

So yes, it is “voluntary”, but then again, it’s not really either. Bleh.


Finally, some happy news.

I’ve received payment of about $120k just last week for tendering my LTC Corporation shares in the privatization bid by the Chengs.

I’ve written so much about LTC Corporation before previously:

LTC Corporation (Part I)

LTC Corporation (Part II)

LTC Corporation & Asia Enterprises Holdings – What Are Investors Missing?

My Current Thoughts On LTC Corporation – FY17Q1 Results

What Makes You Think You Can Win? The Case For The True Value Investor – LTC Corporation & S i2i Limited

“Where Art Thou, White Knight?” – LTC Corporation’s Privatization Offer.

I guess this would just be a closing review of LTC Corporation.

At the tender price of $0.925, my ROI is a mere 28.3%. I’ve recognized a total profit of $25,928 from this investment, after tendering 127,100 shares.

If I benchmark it against STI ETF, as we surely must, this certainly wouldn’t count as one of my greatest successes. In comparison to some of my earlier divestments:

Post-mortem of Hock Lian Seng Divestment

Post-mortem of Metro Holdings Divestment

The returns from LTC Corporation was at best mediocre and probably quite sad if I take into account the holding period of about 4 years. The only saving grace is that the funds couldn’t have come at a better time. To paraphrase WB, I’ve many right “pitches” coming my way, and I intend to really swing the bat furiously.

The Chengs have failed to privatize the company. This isn’t a surprise to me, and in fact, I’ve already expected this scenario in my private conversations with fellow investors. This is the 3rd delisting attempt that I’ve experienced, and somehow, the play book is the same.

At the offer price of $0.925, it’s still a steep discount to the book value. Some investors have refused to accept, and the Chengs have failed to garner the 90% stake they need to force a delisting. Yet, they went ahead to change the offer into an unconditional one, and bought out whoever has tendered.

They had to. The delisting offer process is not cheap, and the Chengs would’ve gotten financial backing to do so, even if they couldn’t fully delist.

So now, as it stands, the company remains listed, but with extremely low liquidity, since the Chengs own just over 85% of the company. Whoever has held out and not accepted the offer, would be unlikely to sell out at the open market now too, as it just doesn’t make sense (open market price is lower than offer price right now)

So both parties did not get what they want. The Chengs fail to delist the company, whoever held out and did not sell out, failed to get the higher price they hope for.

Following this offer, the Chengs are not allowed to make another privatization bid for 1 year according to SGX rules.

After 1 year, my best guess is that the Chengs will come back to buy out the remaining shareholders who have held out, at a higher price than the current $0.925. And this time, they’d likely succeed. That’s how it went with my 2 previous buyout offers, and I think it’d be similar this time around, since all parties would be forced to meet at a middle ground eventually.

It doesn’t benefit any party for LTC to remain a completely illiquid, yet still listed company. The listing doesn’t derive any benefit for the company, and there’s no counterparty to buy shares even if the Chengs want to liquidate. So it kinda defeats the purpose of staying listed.

Why then did I tender at $0.925?

Well, simply cos I can’t be sure that there’d be a higher offer after a year, or sometimes, it may take longer than a year. On top of that, I really do have better opportunities to deploy capital in right now.

And as much as LTC is “undervalued”, with this delisting attempt, it’s clear that LTC is the equivalent of the much vaulted “value trap” that value practitioners like myself always fear.

The book value is $1.64+, the offer price is $0.925 (a substantial discount to BV), and yet the tender went through mostly, except for the few guys holding out. This surely, must qualify as a long term “value trap”.

I chalk it down to market inefficiencies.

Efficient market hypothesis, which I hear is taught in many Ivy League business schools, means that when you’ve such undervaluation, some market entity comes in to correct the undervaluation for his/their own gains.  But this is not possible in this scenario, when the control of the company rests within the Cheng family and their entities, and when the local investing populace is docile and/or mostly passive and uninterested.

Carl Icahn and Bill Ackman would be shaking their heads furiously if they’re here.

So looking at this experience, how does TTI avoid future value traps?

I don’t know tbh. I don’t think it’s possible to definitively identify and avoid completely. That’s where the concept of MOS comes in. You can’t avoid them totally, but the MOS saves you from being consumed by 1.

In any case, if the worst a value play can do to me is to garner a lower return than that of a passive instrument, albeit still a positive one, in the long run, from a complete portfolio perspective, the results would still be very attractive. (For gods’ sake, you can’t be that unlucky to get into value traps all the time)


Oh yes, before I forget.

Since I’ve spent some time talking about IPOs at the start… a friend and fellow blogger did some pretty impressive work compiling IPOs a decade ago and what has since transpired. He included ALL IPOs, even those that are now dead and buried, so there’s no survivorship bias there.

Go take a look.

There are many names there that I haven’t even heard of.

http://growinginvestor.blogspot.sg/2018/04/a-review-of-sgx-ipos-of-year-2008.html

http://growinginvestor.blogspot.sg/2018/04/a-review-of-sgx-ipos-of-year-2009-2-for.html

The results are especially interesting to me right now, for obvious reasons. I’ve paid particular attention to healthcare plays.

Anyway, this is an apt way to end the post. Start it and end it with IPO stuff.

Exciting times ahead.

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