B/E Debacle

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ในระยะนี้มีข่าวว่าตั๋วแลกเงิน (bill of exchange หรือย่อว่า B/E ซึ่งเป็นตราสารแสดงความเป็นหนึ้อย่างหนึ่ง) ของบางบริษัทมีปัญหาชำระเงินไม่ได้ตามกำหนด จึงขอให้ผู้จัดการกองทุนคนหนึ่งช่วยเขียนเล่าเพื่อสร้างความเข้าใจ

ตั๋วแลกเงินเร่ิมเป็นที่นิยมหลังจากที่บริษัทหลักทรัพย์จัดการกองทุนแห่งหนึ่งนำมาใช้เป็นช่องทางหารายได้ให้ผู้ถือหน่วย  มี บลจ. อีกหลายๆ แห่งทำตามและบุคคลธรรมดาก็ทำบ้าง คนเรามีความชำนาญในการวิเคราะห์ความเสี่ยงประเภทนี้ไม่เท่ากัน  โปรดติดตามอ่านประเด็นที่ควรคำนึงถึงจากคุณอรุณ ปาวา ได้เลยค่ะ บทความเป็นภาษาอังกฤษตามความถนัดของผู้เขียนไม่น่าจะเป็นอุปสรรคต่อการทำความเข้าใจเพื่อป้องกันเงินออมที่แต่ละคนมีนะคะ

B/E Debacle

Eventually, No Risky Deed Goes Unpunished

Recently, a spate of negative news hit the headlines of the Thai financial press as B/E issuers defaulted on their payments to investors. For now, let’s set aside the raucous reality and examine why things are the way they are and what questions investors should ask to spot potential problems in order to avoid them.

What exactly is a bill of exchange (B/E)?

            Similar to a short-term loan, a bill of exchange (B/E) is a short-term debt instrument issued by businesses (Debtors) to investors (Creditors) with a maturity period of up to 270 days. Bill of exchange carries a specified interest rate, which is the rate of return investors receive from lending through B/E. B/E issuers are legally obligated to pay off principal capital and interest in full to investors at maturity. A B/E could be issued with a credit rating known as (Rated B/E) or without a credit rating known as Non-rated B/E. Consequently, the interest rate on the latter is higher than the former. B/Es are considered liquid money market instruments that can be actively transacted in the secondary market and hence are common assets of many money market mutual funds.

Liquidity mismanagement, flawed regulations and market participants unwary of risks resulted in financial implosion.

Liquidity mismanagement

The most widely cited reason for defaults on B/Es is “Lack of liquidity”. Clearly, corporate managers of the defaulted companies didn’t heed the old but timeless adage that liquidity is like oxygen often taken for granted, and noticed only when it’s gone. Instead of maintaining ample liquidity on the balance sheet as prudent fiduciaries should, these corporate managers deployed every liquidity they could find to maximize returns. Worse, the sources of liquidity are short-term (B/E instruments) while liquidity was allocated to long-term assets that deliver cash flows on a multi-year basis creating large liquidity gaps that manifested in the form of B/Es roll-over/refinancing risks. Corporate managers’ assumption that credit markets are linear and always function perfectly with access to credit readily available are completely decimated.  Past financial crises are glaring reminders that capital markets are inefficient and market participants are adaptable.

Flawed regulations and market participants unwary of risks

Hardly unique to Thailand, The Securities and Exchange Commission (SEC) labeled individuals with a certain net worth/income threshold as “Accredited Investors” (AIs). AIs are permitted to buy non-rated B/Es and other high-risk financial assets generally not available to the wider public. The flaw arises from equating wealth of AIs with sophistication of AIs. AIs are assumed to possess advance investment knowledge because of wealth. This couldn’t be further from the truth as most defaults occurred on non-rated B/Es purchased by supposedly “Well-versed, sophisticated AIs” through dedicated mutual or private funds. As evidenced, wealth isn’t necessarily synonymous with superior investment-decision making nor is it positively correlated to risk apprehension. Thus, the premise on which regulations were constructed to protect the public is far from perfect.

Asset managers deserve a noteworthy mention. In an effort to grow fees by enticing investors with high yield products in a low interest rate environment, it’s questionable whether asset managers disclosed in totality the default risks inherent with non-rated B/Es. The “High-risk, high-returns” dogma that permeates the investment world and buttressed by many financial practitioners is nothing but a fallacy. If high risk financial instruments can reliably deliver high returns then these securities would not be considered “High risk” in the first place.

Asking the right questions will help investors avoid the folly

The losses from B/Es defaults could have been avoided if investors have asked themselves the questions listed below before deciding to invest in B/Es, rated or non-rated.

1.) If working capital loans from banks are cheaper than B/E instruments, why would companies issue B/Es, especially non-rated B/Es, and incur higher interest in the process? Is it because banks aren’t willing to lend due to the high credit risk involved and B/E is the only source of liquidity available? As a corollary, are these companies financially anemic to begin with?

2.) For any reason, if it’s to be assumed that B/Es can’t be rolled-over at maturity do these companies have ample liquidity on the balance sheet to payoff principal capital or is access to liquidity wholly dependent on the kindness of strangers in order to meet obligations? What happens if access to credit is shut-off?

3.) If asset managers are prepared to offer products that contain non-rated B/Es, are asset managers and their respective employees prepared to invest their own money alongside investorsAre asset managers’ interests aligned with investors’? In other words, are asset managers willing to “Eat their own cooking”?

To end, a quote from legendary investor Howard Marks of Oaktree Capital Management, L.P. aptly sums up the current B/E debacle “At important turning points, when the future stops being like the past, extrapolation fails and large amounts of money are either lost or not made” – Howard S. Marks

Learning about the B/E debacle should evoke a truism among market participants similar to “If it’s too good to be true, it probably is.” Keeping this in mind is an invaluable investment.

 

Written by Arun Pawa

Arun Pawa is a risk-averse, value-oriented investor. He started his career at CIMB Investment Bank, CIMB Group as a Research Analyst covering global equities and ASEAN macro based in Malaysia then Thailand. He’s currently an Investment Analyst at Mahidol Endowment Fund, Mahidol University, Thailand.

Feedback and comments are welcomed, please e-mail arunpawa@hotmail.com

 

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