Alibaba Ripe For Harvesting By End of 2023?

Finally, some good news coming out from Alibaba with the plan to spin off its businesses into 6 different units and future possible IPOs. As a matter of fact, it was announced recently that Alibaba is working with bankers for a $20 Billion listing of Cainiao, its logistics arm in Hong Kong. The share buy back initiatives of Alibaba has limited success to bring up its price and I do hope that the market price will be re-rated after this major restructuring of its businesses through IPO as a catalyst.    

If Alibaba (9988) can double up and hit HKD170-HKD180 per share, then I guess I can finally exit my position with a 100% profit target. My overall investment into Alibaba to date is around S$37K. For me, it is an agony holding on to growth stock such as Alibaba which does not pay out dividends to compensate for the endless wait. During the recent tumble in Alibaba share price to HKD70 per share, I have not invested into Alibaba further as there is just no visibility on when the weakness in its share price will be lifted. 

All the best to fellow retail investors still holding on to Alibaba....it has been a long wait. 

SGX listed Global investment Limited Loss Of S$6.08Mil Due to Investments in Credit Suisse CoCos.

I thought that it is rather interesting to see marketing and mass communication techniques being employed into the SGX announcement by the management of Global Investment Limited ("GIL") to confirm that they have taken a hit in their CoCo with Credit Suisse and then express it in a nonchalant manner since it is only a "mere 2.33%" impact on its Net Asset Value of S$0.1682 as at 31 December 2023. The announcement has cleverly avoided mention of a full write-down by only inserting a URL for shareholders to read for themselves the other announcement coming out from Credit Suisse as well as astutely avoiding the quantification of the absolute quantum that is now worthless by only referencing to 2.33% of net assets.

1.Quantification of absolute amount lost in the Credit Suisse banking crisis- S$6.08Mil

SGX announcement by GIL

Source: https://www.credit-suisse.com/about-us-news/en/articles/media-releases/credit-suisse-and-ubs-to-merge-202303.html

The financial impact of the CoCos that the Swiss government has announced as a full write-down amounted to S$6.08 Million. This is actually an extremely high amount that is nearly half of the annual dividends income and interest income received by the GIL from its investments. 

Total Revenue from main investments of GIL

The worst aspect is that the banking crisis continues to spread with Deutsch bank, one of Europe's largest bank, also appearing to be in trouble from a lack of confidence- GIL has 10% exposure to Germany out of its total S$124.45 Million in bank CoCos.

Another 10% potential exposure in CoCos coming up from Germany bank in trouble

2. Net Asset Value after taking out Credit Suisse CoCos exposure

As aforesaid mentioned, there maybe another S$12.4Mil of potential exposure coming out from Germany CoCos and this may even be higher if the banking contagion starts spreading again in Europe.

Parting thoughts

As at 24 March 2023, GIL is languishing at S$0.105 per share which is one of the lowest ever over the past 5 years. Tier 1 banking capital has become extremely risky in the prevalent market conditions and 47% of its net asset are stuck in CoCos. Personally, I am staying away from GIL for now until the banking crisis stabilized. 

Please also see my previous post:"Global Investment Limited In Crisis Mode- 48% of Its Net Assets Are In Bank Contingent Convertibles (CoCos)."

DigiCore REIT Potential 2nd Major Tenant Potential Bankruptcy Crisis Temporary Postponed to April 2024.

I do not want to be a busybody but I thought that it is rather interesting that Professor Mak Yuen Teen from NUS Business School, who specialises in corporate governance and ethics, wrote recently about Digital Core REIT ("DIGITAL CORE REIT: ANOTHER FOREIGN REIT ON A BUMPY RIDE") on 17 March 2023. So I should document it here for my personal future reference as well as to share with folks who are interested to read more about it. Then on 20 March 2023, John Stewart, Chief Executive officer, of Digital Core REIT ("DCR") subsequently responded to the various articles including from Prof Mak relating to the financial crisis of its 2nd largest customer, Cyxtera Technologies.

 

1. Updates on potential default of Cyxtera Technologies, 2nd largest tenant, making up 22.6% of DCR's rental income.
Basically, on 16 March 2023, Cyxtera has announced that it has entered into an agreement with its lender to extend the maturity date of its 2023 debt maturity to April 2024 and has not requested DCR for any rent deferments, rental reductions or contraction of the space it occupies. 

2. Prof Mak raised very good points but read it with a pinch of salt
From my perusal, the 3 main points raised by Prof Mak in his article are as follows:

(i) Conflict of interest between sponsor which is listed in US and DCR which is of a smaller scale listed in Singapore and the interest of US shareholders of sponsor will take precedence; 

(ii) One of the independent director was a former DBS equity market staff with strong ties to DBS which is the issuance manager of the IPO and

(iii) Poor quality tenants dumped into the DCR as evident from default of Sungard and another upcoming delinquency by Cyxtera.

My only comment here is that being in commercial and running a business has all kinds of risk. For example, it does not mean that with good and awesome "Corporate Governance", then this is the magic bullet that will ensure minimum risks to a business. Even long established banking institution like Credit Suisse almost suffered from a complete collapse just recently. If anyone wants minimum risk free investment and tenants that will never go bankrupt or default on rental, then go invest in treasury bills or government bonds and stay far away from equities.

Parting thoughts

Well, the saying goes that "hindsight is always 20/20" and I have not seen Prof Mak daring to make a bolder statement that DCR is destined for business failure due to its poor corporate governance. But I am very sure that if DCR really went under water in future, then Prof Mak and other "experts" will rush in to assert that their previous "warnings" were right on the spot as they spotted the early "warning signs".  

Anyway the key question I guess is whether DCR is on the verge of a complete collapse and that it is in fact worthless or is the current market price at US$0.420 per unit adequately reflecting its fair valuation after taking out the upcoming bankrutpcy of Cyxtera and other weak major tenants? 

Global Investment Limited In Crisis Mode- 48% of Its Net Assets Are In Bank Contingent Convertibles (CoCos).

It has been a long time since I last write-up on Global Investment Limited ("GIL"). GIL used to be one of my favourite counters as I find its market trading price to be grossly undervalued to its net asset value (which is mostly reflecting fair value accounting). Anyway, I have sold off most of my shares in GIL during September 2021 to October 2021 when it last traded at a high of S$0.154 to S$0.155 per share- my current residual shareholding is only 1 share which is an odd lot leftover from one of the shares for scrip dividends exercise.  Given that its price has slumped  by <27.1%> to S$0.113 per share and offering up till 6.7% dividend yield, is it a good buy now?

1. Banking sector crisis
Given the cracks appearing in the international banking systems, holders of Bank Contingent Convertibles (CoCos) are now being exposed to an all time high risk. CoCos are the lowest rung of bank debt created during the European debt crisis to buffer banking capital. CoCo bonds is structured around a loss absorption mechanism, so it is a product with extremely high risk.  When the regulatory authority makes a judgement that a bank is unable to continue its operation, it will reach the trigger point. This will force the conversion of CoCo bonds into ordinary shares or writing down of the principal of the bonds in accordance with the terms of its loss absorption mechanism. Holders of CoCo bonds might need to bear part of the loss or a total loss of their investment.

In short, the US$17 billion of CoCos held by bondholders of Credit Suisse are now worthless overnight with the takeover by UBS. The Swiss lender had 13CoCos outstanding issued in Swiss francs, US dollars and Singapore dollars.

2. GIL's exposure to CoCos

GIL has a whopping 47.7% of its net assets in CoCos. How much was its exposure to Credit Suisse is the big question mark here?

Parting thoughts

Personally, I think that this might be one of the worst time to be invested in GIL given the loss of confidence in the international banking systems. The demise of 3 US banks and 1 major European bank in a short span of just 1 week underlines how bad is the global economic climate.  I thought that GIL should actually reduces its holdings in risky CoCos and instead allocate more of its funds into global listed equities while waiting for the economies to rebound and the bull market to return.  

DigiCore REIT- Disaster In The Making Or Potential Upsides?

I think I need to be very clear upfront to all folks here that my postings here is more for my own reference and documentation of my personal investment journey and thoughts. It is not a buy or sell recommendation or trying to influence folks to follow what I do. In any case, I am sure that all folks agree that everyone's own circumstances and investment philosophy is unique especially in the current climate filled with grave uncertainties. The only certainty is to diversify your investments and not to over-concentrate one's own investment portfolio such that a major disaster becomes a huge loss in capital that one can never recover from and then regret it for the rest of your life.  

1. DigiCore REIT- Disaster In The Making Or Potential Upsides?

Now back to the main topic on hand. Given that the dust over the plummeting share price of DigiCore REIT has more or less settled with many analysts and the senior management of DigiCore REIT coming out to comment on the root cause, I will just sum up the situation with the following flowchart:

So, it boils down to one's perception of whether DigiCore REIT will end up in scenario 1 or scenario 2 given the worsening economic conditions. 

2. Refinancing risk for DigiCore REIT given the recent banking crisis in US.

The major re-financing risk for DigiCore REIT is due in 2026 which is another 3 more years away.

Parting thoughts

Personally, I am keeping my investment exposure to DigiCore REIT to less than S$50K. As I mentioned in my previous post, I am not a major fan of DigiCore REIT given that there is already a major tenant default (Sungard) and another potential one coming within a short span of its IPO in December 2021. Really makes one wonder whether the sponsor Digital Realty is dumping low quality tenants into DigiCore REIT. However, at my various lower entry prices relative to IPO, I am contended to stay on course for now and will continue to monitor the latest development closely.

DigiCore REIT Sudden Plunge of Over 13% In A Single Day- Should Retail Investors Be Worried And Run For The Exit?

DigiCore REIT suddenly self-imploded today and crashed from US$0.495 on previous trading day (15 March 2023) to as low as US$0.420 per unit during the trading session on 16 March 2023 itself which represented a sharp decline of <15.2%> within a single day as well as a 52 weeks stunning low record. Its strong performance in Q1 2023 ended with a high of US$0.680 per unit on 3rd February 2023 and then collapsed spectacularly within a span of 1 month by a whopping <38.2%>. At this price, Digicore REIT will be trading at an impressive distribution yield of 8.85% per annum. Whatever happened to DigiCore REIT?

What happened to DigiCore REIT?

The strange thing is that nothing major has been announced by management of DigiCore REIT. I have also searched major forums but seems that everyone is also wondering what major calamity had transpired and is equally clueless. (*Updated 18th March 2023: The 2nd largest tenant Cyxtera maybe facing bankruptcy soon if it could not restructure its debt-there is thus grave uncertainty  over the prospects of DigiCore REIT given that Cyxtera made up 22.6% of its revenue stream).

I can only conclude that the relentless rate hikes from the Federal Reserve plus the recent banking crisis in US have taken a toll on the resiliency of DigiCore REIT. Many investors greatest concern would be on the quality of the tenants in its portfolio. Given the various operational restructuring among tech companies, there maybe fear that rental default of data centres leases may become rampant. 

Based on the previous major incident involving the default of its major tenant, Sungard Availability Services, many investors may have lost confidence in the REIT given the US banking crisis and detrimental effect of interest rate hike on the global macroeconomics condition in particularly, the tech sector. 

Saying that, I think that DigiCore REIT has a wide enough diversified client base and is not too worried for now on further client default.

Parting thoughts

In the absence of any negative major announcement by the management of DigiCore REIT or other market information, I will continue to stay invested in DigiCore REIT. I have also accumulated additional 5,600 units @US$0.430 per unit today. Keeping my fingers crossed that no major calamity occurred. Will be adding on to more units in another 2 weeks time if the weakness prevail. 

Please also note that I am actually not a major fan of DigiCore REIT- I do have my reservation on its fundamentals given that DigiCore REIT's performance has been nothing short of a disaster since its IPO and listed price of US$0.88 per unit in December 2021. Also, many investors who entered at US$1.20 per unit during its peak got burnt badly with the surprise default of a major tenant. Still, 8.85% forward distribution yield per annum is attractive enough for me to take on the risk and remain vested in it.

(Please also refer to my latest post on 18 March 2023 on  my latest thoughts on DigiCore REIT)

Manulife US REIT High Gearing Ratio Crisis To Be Averted With Entry of New Sponsor- Korean Mirae Asset Global Investments.

First and foremost, I am vested in Manulife US REIT ("MUST") and I do have mixed feelings over the recent development. Basically, on 15th March 2023, MUST confirmed media reports leaking out earlier news of the potential entry of Mirae Asset Global Investments and a potential sales of stake in MUST Manager as well as a private placement in MUST itself. I was a bit disappointed as I thought that MUST would either sell off 1 or 2 office buildings or even dispose the entire portfolio of office assets- these would be the most value adding options on the table for current unitholders of MUST as it is currently trading at a 50% discount off its Net Asset Value ("NAV") per unit.

1. Why I do not like the entry of Mirae Asset Global Investments into MUST
It sure looks to me that the original sponsor, The Manufacturers Life Insurance Company (Manulife), is bailing out itself. It did not offer any plan to buy-over any office asset of MUST to avert the potential statutory leverage ratio breach. This seems to suggest that MUST management has great reservations about the future income generating abilities of commercial office assets given the hybrid working arrangements taking root in US. 

Another reason why I do not like the above recent development is that preference private placement for MUST is most likely on the table. MUST current market pricing has tumbled by more than 50% and more than half off its NAV per unit. For Mirae Asset Global Investments to inject additional capital into MUST, this will be definitely done at the prevailing market rate with another 5%-10% further discount I reckon which is extremely unfair to long standing loyal unit-holders. All unit-holders will be diluted by such a move.

2. Achilles' heel faced by Sponsors of most US REITs

I just realized that most US REITs faced one fundamental issue. The sponsors will not be keen on capital injection to save the REIT due to the withholding tax rule that non-US person should not hold more than 10% of the units in the REIT. If not, the US withholding tax rate of 30% will apply which will shave off a hefty part of the income distribution to the sponsor. MUST's sponsor, The Manufacturers Life Insurance Company (Manulife), seems to be worried about this tax issue. I believe that the new sponsor Mirae Asset Global Investments will also be facing this particular tax challenge.

Retail investors buying into US REITs will have to bear more risk premiums as there are restrictions being handcuffed to a sponsor.  

Parting thoughts

I can only say that beggars can't be choosers. A rescue plan on the table is better than nothing and letting MUST continue to wither away due to the albatross dangling around its neck is certainly more detrimental to existing unitholders. Hopefully, in a few more years, the office demand will go back up and a more friendly interest rate environment will lead to a better market price and also higher distributions to all MUST unitholders.

Last but not least, if Manulife is no longer a sponsor to MUST and held zero shares in the REIT Manager, then I will need to also revise my investment thesis and may cut down further stakes in MUST for re-deployment of capital into other investments- I do have issues with Mirae Asset Global Investments as I do not know them well. 

Please also see my previous post: "Manulife US REIT Spectacular Self Implosion- Risk of Firesales of Office Properties Or Dilutive Rights Issue".