Tuesday, November 27, 2007

Citi's 11% convertible bond placement with Abu Dhabi

I was wondering what forced Citi to place this $7.5 billion bond at such a high yield. After-all, Citi can raise high-yield debt at less than 9%. And this bond has a convertible option, so the yield should have been lesser.

Then I read this statement in Citi's press release - "The payment rate reflects market terms based on the conversion premium as well as Citi's current dividend yield." Citi's current dividend yield is 7%. So the yield on bond is 4%. Is this the correct way to think about it? Maybe yes. After-all, why will anyone buy a mandatorily converible bond if the bond yield is less than the current dividend yield. The investor would be better off simply buying the stock in the open market.

For Citi, this is better than selling stock at current depressed price of $30 (conversion price is $31.83 to $37.24). But it would have been better if they had stuck this deal when the stock was at $40 a month ago, when the full extent of their SIV troubles was already known. At that time they could have saved 2%-3% in interest cost, besides striking a higher conversion price.

Thursday, November 22, 2007

Trip to Bhopal

I went to Bhopal last weekend to visit my sister. It is a really nice city, with some good tourist attractions. I would recommend anyone to go there for a weekend. As wikitravel doesn't do justice to Bhopal, I thought I will write a brief review here.

Places to see:

a) Bhimbetka - A World Heritage site in Bhopal !! I wasn't aware of this. It has some of the oldest cave paintings in India and in the world. So this is where one finds the earliest signs of human life in India. On some of the stone walls, there are a 10000 year old, a 5000 year old and a 2000 year old drawings, all side by side. The place is called Bhimbetka because according to legend, the Pandavas stayed here while in exile. There is a rock high above where Bhim is supposed to have sat (so Bhim + beth, i.e. sit in Hindi). Ask for Mr Rai as the guide - he is an old chap but his voice really rings out loud. http://en.wikipedia.org/wiki/Rock_Shelters_of_Bhimbetka

b) Bhojeshwar Temple in Bhojpur has the largest Shivling in India. Incidentally, Bhopal is named after Raja Bhoj (of Gangu teli fame).

c) Lakes - Many lakes in the city. Bada Taal is really huge. One can do kayaking/boating in "Bada taal", and then go to Cafe Coffee Day on the hill to drink coffee while having a nice view of the lake.

My sister took me to a couple of really good restaurants. I forget the name. Sorry!!

Tuesday, November 13, 2007

Stocks on radar

CNBC ran a 5 min clip on holding stocks trading at huge discount to assets. With the current run up in stock prices, one can argue that the stocks that these holding stocks own are expensive, rather than the holding companies being cheap. Still, it will be useful to have these on radar. TCI Finance, which owns Gati, could be interesting.

Mcdowell Holdings
Nagreeka Capital
TCI Finance
BNK Capital

Selling EWH and VBC Ferro Alloys

I sold the two speculative stocks that I had in my portfolio last week. EWH - the Hong Kong Index - was sold a mere 2 days after it was first purchased. I sold it at a loss of about 4% (at $23.10). As it was a speculative position and I was investing in an unknown, my stop loss was very low. I am happy that I got out soon as EWH has kept dropping - today it is at $21.14.

Net net, with the gains in VWO last month and the loss in EWH this month, I made roughly 7% in a month and a half on 25K. Speculation can be rewarding.

I also sold VBC Ferro Alloys in India at Rs 365. I had purchased it at Rs 351. I can see why this stock should do well in the current power craze in Indian stock markets as the company owns 10%-15% odd in Konaseema Gas Power plant. At Rs 365, VBC Ferro is trading close to book value when power stocks in India are trading at 3x-4x book. Still I sold, as I think the noose is tighetining around speculators. US is going to flirt with a recession in 6 months if not earlier.

I own 3 stocks in my PA now:
a) Blue Dart - trading at 15x Dec08 P/E and growing at 30% yoy. Almost a monopoly in overnight courier business. While competition is hotting up with Gati starting services soon, the stock is cheap. Plus DHL (Blue Dart's majority owner) came out with its open offer last year at 550. Stock is now at 565. I plan to keep this forever.

b) Deccan Chronicle - While corporate governance is questionable, I love newspaper stocks. At 15x March08 P/E, it is cheaper than US newspaper companies. I plan to keep this forever.

c) Omaxe - Some money should be invested on speculation - this is my speculative stock these days.