The charge sheet against S Iswaran was a revelation. It was not because of the accusation of impropriety. The former minister seems to enjoy theatre. He watched The Curious Incident of the Dog in the Night-Time in 2015.
This play is based on a book by the same name by Mark Haddock. The book features a 15-year-old boy called Christopher. Christopher is a mathematical genius with unusual challenges. He has trouble making conversation. He takes everything literally and cannot tell lies.
The boy discovers that the neighbour’s dog had been killed. The unfortunate creature had been speared by a garden fork. Christopher applies his icy logic to solve the murder.
The boy’s investigations reveal more than what he expected. He had been told that his mother was no more. Christopher finds that she was still alive and was having an affair with the neighbour.
Christopher’s analytical skills could be in need in Singapore’s equity market. The pandemic stimulus left many companies with heavy debts. Like the cause of the death of the dog in the book, the dangers of debt are not easy to see.
The high debt level has escaped the attention of investors. It has been hiding in plain sight.
Singapore Exchange has many listed property developers and banks. Most people would assume that the most indebted company would be a property developer like CapitaLand or a bank like DBS.
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Sitting duck
Instead, the mantle falls on a commodity trader. Wilmar International F34 is Asia’s largest agri-commodity trader. It has a tight grip on palm oil in Indonesia and soybean trading in China. It operates sugar plants in Australia.
Investors should be alert to the dangers in the balance sheet. Wilmar’s net debt is US$26.6 billion ($35.6 billion), which is twice its market cap. The debt levels mean that it is a sitting duck in a higher interest rate setting.
The recent spike in interest rates means that Wilmar’s net interest expense in FY2023 could triple from US$253 million in FY2021. This would make its ebitda-capex/cash interest paid ratio the highest in a decade.
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Wilmar’s management has stated that its net debt can be set off against its readily marketable inventory. This confidence may not stand muster in the bear soft commodities market. Investors may be enticed by Wilmar’s 5% dividend yield, but they should watch the debt.
Food for thought
Another commodity trader could be facing debt issues. Olam International VC2 is a major trader of food and agricultural products. It operates in over 70 countries. It processes one-fifth of the world’s cocoa and dominates the world’s cashews. Many of us have used its products without knowing it.
The company’s net debt has doubled in the last decade. It now stands at US$13 billion. These debt levels may be easy to service in a low interest market. But, the net interest expense of US$1 billion may be hard to service. During the pandemic, Olam’s ebitda fell to those levels. L
ike Wilmar, Olam claims that it could liquid its inventory. Inventory amounts to US$4 billion. This claim could be challenged in a commodity bear market. Disposing of one-fifth of the world’s peanuts may require more than a trip to the zoo. In 2008, the value of Olam’s inventory fell by half. Olam’s debt levels are food for thought.
Thai Beverage (ThaiBev) is one of Asean’s largest spirits producers. It is controlled by the Sirivadhanabhakdi family. It also produces the Chang beer brand and is the largest brewer in Vietnam via its stake in Sabeco. It is viewed as the Oliver Twist of Asean, the orphan in Charles Dickens’s book. Its operations are in Thailand and Vietnam, but it is listed in Singapore. This means that it is sometimes disowned by analysts in all three markets.
A lack of analyst coverage is not the company’s problem. Its net debt is at THB153 billion ($5.7 billion), which is five times the level in 2017. The explosion in net debt is because of the acquisition of Sabeco, Vietnam’s leading brewer. Covid has affected tourism in Vietnam. Beer consumption growth continues to be poor in that country. This means that ThaiBev’s ebitda could be barely enough to service the debt.
Investors may not need a dog to alert them to danger. Debt may bite these companies in the leg.
Nirgunan Tiruchelvam is head of consumer and internet at Aletheia Capital and author of Investing in the Covid Era. He does not hold any position in the stocks mentioned in this column. This column does not constitute investment advice of any kind
