First of all the link:
As you can see
this bonds yield 6,75% per annum and are trading at 95% of par value, and are
to be repaid in 18 March 2016, the coupon is paid half yearly. Accrued
interests are currently 2,436%. So, you would pay 97.436€ today to receive
103.375€ in less than two months (54 days), approximately 6,1% (approximately
49% compounded annualized yield).
So the return is
great. What about the safety?
This is a Mota
Engil SGPS bond. They are a construction company with lots of sub-companies.
They have about 1600M
in debt with parent company warranty. This emission represents only a very
small part of their total debt.
They have loads of
short term debt that are part of their normal activity.
They have a huge
business in Latin America and Africa (especially in Angola), since it is a
construction business they might have difficulty collecting.
However, they
released a statement last week saying:
1- Their
collections were positive in last quarter 2015 in most countries where they
have activity, resulting in a significant debt reduction
" the
receivables flow was positive in the three regions (Europe, Africa and Latin
America), which allowed for a significant decrease of the consolidated debt
level between the period ending in September 2015 and the period ending in
December 2015"
and
" it is
important to highlight that almost all countries have contributed to this
trend, mainly Mozambique, Mexico, Poland, but also Angola, Czech Republic and
Portugal."
2- They have
continued with their policy to extend maturities and reduce debt cost
"Mota-Engil
has been executing the refinancing of its debt in line with its plan and
strategy, having closed several operations during the fourth quarter of 2015
and during the first days of 2016. Accordingly, Mota-Engil financial strategy
mainly focuses at decreasing the debt cost and extending the debt
maturity."
3- They maintain
their strategic objectives
"from a
strategic standpoint and as previously stated, it is worth mentioning that the
focus on the waste collection and treatment businesses will allow the segment
to grow and to expand in the international markets (namely with new operations
in Latin America and in Oman). Besides, the disposal of highly mature assets
(namely in transportation concessions and ports) has been proceeding
successfully."
a) It is important
to mention that this waste collection business was acquired in Q2 2015 and has
already been paid for (and is included in the debt mentioned above, a good part
of the non guaranteed debt is also in this company)
b) The mature
businesses are
i) transportation and ports business: sale to Yildirim agreed.
Will result in a debt reduction of 330M (275 equity + 55 debt)
ii) Ascendi: An investment of 300M for 50% of some concessions by
Ardian is expected to close this month. Additionally, they are in negotiations
to sell Ascendi final proposals planed for the end of this month and a
conclusion reached in February. Mota Engil owns 60%, expects to sell at
least 40% (and ideally maintain the remaining 20% as a strategic partnership
for their construction business). Santander apparently values Ascendi at 326M,
and BPI values it at over 600M€. If they were cash starved they would agree to
sell the 60% which would mean approximately 200M (according to portuguese
newspapers)
ii) Indaqua: said to be in advanced negotiations with closing
expected to the end of this month. They own 50,06% (a control position) which
are seeking to sell. (according to portuguese newspapers). The non controlling
half is held by Falanx (german), which bought it in 2014 for 52M. Obtaining the
same 52M for the controlling 50% seems reasonable
So the say they
reduced debt last quarter and they are selling assets which should result in a
near term cash receival 585M to be used in reducing debt. So the likelihood of
missing payment on this bond seems reduced.
risks:
a) New government
in Portugal says they are monitoring Yildirim transaction. It is hard to
believe they would interfere but not impossible
b) New government
in Portugal is canceling some deals by the last government. One of them involves
a Mexican company which is arguing their investment is contemplated in
bilateral deals between the two countries. Mexico is a key market for Mota
Engil
c) New government
in Portugal and general investment feeling globally is weak this month. The
proposals for Indaqua and Ascendi might be lower than expected or deemed
inappropriate
d) They might have
difficulty in collecting receivables
It seems unlikely
all this risks would pose a problem for a small bond due in 55 days
Disclaimer: I
could not buy this bond. Asked for it and was informed that my broker did not
currently trade bonds. So I have no positions. This is not an investment
recommendation. Do your own
due diligence. Always read the introduction post
edit: spelling
