November 2021 Update

I am posting my November updates early admist a string of bad news. The worst of all is the my mum's health screening report has some worrying numbers, and my portfolio experienced a major sell off in a matter of days. I would probably be spending time quietly for the rest of Nov and most of Dec, getting drenched by the sell down in stocks and fate. I guess.

SPDR Singapore Straits Times Index Fund (ES3): 14.55% (as of 20-Oct-2021) -> 17.18% (8-Nov)
Hong Kong Tracker Fund (2800): 0.33% -> -5.02% (wow, this is shocking)
SPDR S&P 500 ETF (SPY): 23.77% -> 29.19% (shocking as well)

My portfolio returns: 42.95% -> 37.70%

In a matter of less than 20 days, my portfolio plunged 5.2%... we get to why in a moment.

Notable transactions:

-Major increase of 16% shareholding in OKP.

-Divestment of Renrui HR Technology. Since the stock price plunge to less than 10 a share, not a single insider has bought stock. The effort to lure staff in financial sector will only not pay off so soon. 

-Reasonable initial investment in Central China Real Estate (CCRE) and increase in Central China Management (CCMGT).

-Bought modest amount of call options at 18.00 strike, for Pershing Square Tontine Holdings, expiring in June 17, 2022, at USD 2.20. That means I am paying 20 cents for each probable SPARC warrant (IF SEC allows), and enjoy a significant upside if they manage to find a deal before June. Nevertheless, it is expected that the situation would be clearer before we reach June.

***

The PSTH situation can be summarized into the following
1. It is a SPAC that was suppose to be shareholder friendly.

2. It is the biggest SPAC at 4 Billion 

3. It was suppose to acquire a good portion of UMG but was striked out by SEC

4. Stock sold down as the UMG deal was consummated by Ackman's PSH instead.

5. UMG soars due to record profits

6. Lawsuit brought on PSTH-- accusation that they are not suppose to use funds for investments on Treasuries.

7. PSTH is now trying to get permission to allow them to distribute warrants for an entity with no shares, which is not allowed.

Given that a SPAC is suppose to get a deal done in maximum 2 years, it is likely that by June 2022, there will be clarity to what PSTH's future holds.

Firstly, Ackman is still brilliant in finding deals.

Secondly, if the lawsuit get settled, it should be favorable to PSTH's current price, which is 1% under NAV of $20.

Thirdly, I think options is a cheap way to gain more of the upside. Suppose I would to buy 100 shares of PSTH, that would be 2000 USD outlay. I could use the same amount of money to control 700 shares.

Given the long expiry nature and a somewhat known date that something would happen then, I think it make sense to take a little risk to buy those options.

***

Portfolio Concentration

At present, my top five holdings are:

OKP (31.88%)

Carpenter Tan (11.25%)

TTJ (9.69%)

Centurion (9.42%)

CCMGT (8.16%) //CCRE would be 4.61%. Since the fate of both companies are irrevocably linked to the real estate trough, it would be right attribute them together as one. Hence, 12.77%

So my portfolio concentration is now 75% for six or five stocks, the way I see it... volatility is going to spike up for sure.

Both CCRE and CCMGT sees major selldown 25% and 11% respectively. The selldown for CC* stocks is brutal. Portfolio is further dragged by sell down in Alibaba.

Pressure on property developers- A quick look at Central China Real Estate (CCRE)

News of pressure on publicly listed property developers are nothing new. Here are a few choice selects of how badly things are, year to date.

But today, I am going to lightly look at Central China RE, ticker 832, which had fallen a fair bit:

Although I would arguably say that it is a bit misleading, since they had distributed 41 cents of dividend, as well as a 1-to-1 spin off of CC Management, a property project management company. 

Both CCRE and CCMGT suffer dramatic amount of decline which I would not elaborate.

The problem with CCRE might not be with the bank debt.

CCRE's debt/leverage instruments are classified into 4 types:

1) Bank Debt

2) "Other" loans

3) Corporate Bonds

4) Senior Notes.

Data is taken off its interim report.

Assuming that this crisis last for another good 2 years without CCP intervention, the company faces an approximate 15.7B in principal to repay. The best case scenario is that the banks would allow this company to refinance its debts. That would mean a relief of 4.5B. There is still about 11B of senior notes to pay.

Even without the best case scenario, it has about 10.8B in cash, and 5.6B in restricted cash deposits. I think it is probable that debt would not be the problem.

The company is opportunistically reducing the amount of senior notes payable by redeeming them at this moment, but looking at the take up rate, it is not high. I believe only widespread contagion could change this.

Ask prices for some of its bonds are really depressed (from Bondsupermart, 6-Nov)

And while not interest-bearing, of particular worry is its contingent liability of 51.8B, which are made towards customers of their properties underdevelopment. Could this sum be adequately covered by its other assets?

There is another 54B in payables, inadequately "covered" by account receivables of 24B.

In summary, given no support from the G, the situation at CCRE looks like this:

This is given that the worst case scenario that all the mortgage loan holders (customers) defaults (under "contingent liabilities"), which is rather unlikely. Mr Wo Po Sum, the overwhelming shareholder of CCRE, might contribute positively to its liquidity. However, his networth at this moment is uncertain.

The current market caps of its listed subsidiaries could be sold at current prices and potentially tide the owner over. Take note that their prices had declined over the months:

Central China Management, 3.78B HKD (68% shareholding of 3.11B RMB)

Central China New Life, 6.22B (69% of 5.11B RMB)

I have not looked at CCNL, but I believe the valuation of CCRE and CCMGT are not demanding, and insiders has bought a respectable amount of shares using their own money in the recent months.

Central China (832) Insider buying records above. That is about 40m of shares bought in just two months, of the 3 billion shares outstanding.

Central China Management (9982) Insider buying records above. Approx 1.7m shares bought in 2 months, total approx 3.3 billion shares outstanding.

As such, I think CCRE has a good chance of emerging from this crisis, especially if the CCP steps in.

Both CCRE and CCMGT represents a total of 15.2% of my portfolio

"I wish I am rich"

Some of my friends wish so almost every single day. They have a lot of burdens-- nursing homes, baby, and even basic fix expenditures like electricity and water.

I am very, very fortunate and earn enough to not worry about this on a day-to-day basis. Being single and alone, that is not unusual. I will most definitely pay the cost towards my elder years... whether it is in the form of emotional currency, I am not sure. Guess I deal with it when it comes.

The last time I wish I was rich, was when I was out with my mum at the shopping mall. That was some years ago, way before COVID affected our lives.

I could remember exactly the spot which it happen.

As my mum was inspecting the (slightly) overpriced clothings at the bazaar, a distracted elderly woman was struggling to communicate with someone on her Whatsapp. I happen to glance in the direction because I saw a photo of a family, gathered around an elderly man, lying on a hospital bed.

The follow up text she wrote was:

"Doctor say that his prognosis is not ideal"

If I have been very very rich, I would immediately dispense a small fortune to her at will, so as to get her to quit her job and spend more time with, probably, her father. That, was the only episode in my life, that I wish I was rich.

My life has so far been blessed, but sooner or later, I would have to deal with death and difficulties within my own household. And by then, I wish I would have the millions to quit my job on the whim. I hope this good fortune of mine last as long as I deserve.