Markets

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

The holiday season is almost upon us. It's time to buy presents, see the relatives, and, if you're a bondholder in this part of the world, be generous with those companies struggling to keep their promise to Santa to be good.

It's becoming a tradition, particularly in Singapore, for issuers to take advantage of creditors' festive cheer and ask them to be a bit more lenient regarding the terms of their borrowing contracts. Six companies in Southeast Asia have made consent solicitations since November, according to data compiled by Bloomberg, making it the busiest period in several years. Four firms are from the city-state, and two from Indonesia. There was a similar surge last year in the lead up to Dec. 31.

Santa Baby
The number of consent solicitations in Southeast Asia tends to rise around this time of year
Source: Bloomberg

This seasonal spike shouldn't give anyone a fuzzy feeling, though.

When companies sell bonds, they typically lay out a bunch of terms and conditions to give investors confidence they'll be able to pay their dues. They include things like limiting debt ratios or placing a cap on interest payments versus profits. Such covenants, however, are only tested when a company is pulling together its period-end financials. If bond covenants aren't met, there's a technical default, and noteholders can request immediate repayment.

Around Christmas, then, is the time chief financial officers begin to question their finance teams over whether the promises made in bond-sale documents will be met. If it appears they won't, out go the consent-solicitation letters, asking for some reprieve in the form of amended terms and conditions.

The danger is that this may be a sign of something other than slightly stretched balance sheets. The slew of consent solicitations at the end of 2015 and start of 2016 by Singapore oil and gas companies was followed by a string of defaults.

Firms coming cap in hand this time include Jakarta-based tiremaker PT Gajah Tunggal, which has a CCC+ rating with negative outlook from S&P, unrated oil-services company Ezra Holdings Ltd. and KrisEnergy Ltd., whose S$200 million ($139 million) of 5.75 percent notes are trading at about 50 percent of par. KrisEnergy is already tussling with banks over covenant breaches while Ezra is onto its second consent solicitation this year.

Such letters should serve as a warning to creditors, and a signal to delve deeper into a company's finances.

As another year draws to a close, the spirit of giving may abound. But bondholders, don't be so hasty.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Christopher Langner in Singapore at clangner@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net