Global Investment Limited- Excess cash from FY2017 deployed into China Domestic Bonds

From my last review, Global Investment Limited ("GIL") had S$88Mil of cash on hand as at 31 December 2017. Total assets is S$337Mil. This represented a 26% of unproductive assets held as cash and cash equivalent at the end of the previous financial year.   

For Q1 2018, GIL had deployed S$59.11Mil into purchase of a basket of 21 China domestic bonds. These fixed income securities have a weighted average coupon of 4.28% and have a weighted short term maturity of 2.22 years. The invested fixed income securities are classified by management as held at fair value. This is a sound strategic decision to deploy the excess cash on hand to earn returns. At the same time, the 2.22 years holding duration minimizes the risk of further likely global interest rate hikes while leaving room for GIL investment team to maneuver if global recession indeed sets in. 

New investment into China Domestic Bonds-S$59.11Mil allocation by Sector

The China retail bonds may not be as low risk as one believes. There is no ratings by international rating agencies, instead, only the ratings from domestic rating agencies are available. There is also currency risk exposure as the bonds are all denominated in CNY whereas the functional currency of GIL is SGD.  However, I think that overall, the risk is manageable as the current market price of S$0.135 is at an almost 44% discount off the Net Assets per unit held by GIL (S$0.1945 as at 31 March 2018). Recently, the price of GIL declined further by 6.9% (from S$0.145 to S$0.135) hence further enhancing the margin of safety for investors who are accumulating GIL units during the recent market downturn.  

The other significant development announced in May 2018 is that GIL managed to get an amicable settlement from Babcock and Brown in respect of false and misleading representations made to GIL in respect of its previous investments in railcar portfolios. GIL will be receiving approximately S$6.8Mil from Babcock and Brown as the settlement sum. This is a positive development as that there is no long drawn litigation case from this saga which will drain financial resources as well as the focus of the management from running the Company and that GIL will be getting compensation of S$0.004 per unit. 

Amicable settlement of litigation with expected S$0.004 per unit of net proceeds for GIL

The only unfortunate event for Q1 2018 is that there is a net loss from fair valuation of assets classified as held for trading. This might have an impact on the upcoming interim dividend paid out. The management had informed shareholders that instead of economic profit, it will benchmark dividends payment against net profit to better relate the dividends payment to earnings. Management seems confident as of 10 May 2018 that they will be able to deliver dividends of S$0.005 per unit. This is a dividend yield of 3.7% for half year interim and if extrapolated, represents an expected 7.4% dividend yield for the whole of FY2018 based on market closing price of S$0.135 per unit for the 1st half of 2018. If we compare this to last year interim dividend of S$0.006 per unit, this is a decline of 16.7% in terms of dividends paid out.  

S$0.005 per unit of dividends expected for interim 2018- 16.7% decline from prior year.

It will be interesting as investors await the announcement of the results of GIL for its 1st half financial year performance in August 2018. 

P.S: Please also see my previous post "Global Investment Limited- Financial review. Is it really a "Hidden Gem"?"