WEBVTT - Leveraged Loans Reap Risk-On Gains; Indonesian Junk 0:00:13.760 --> 0:00:16.720 Hello, and welcome to The Credit Edge, a weekly markets podcast. 0:00:17.160 --> 0:00:19.919 My name is James Crombie. I'm a senior editor at Bloomberg. 0:00:20.600 --> 0:00:22.480 This week, we're very pleased to have on the show 0:00:22.720 --> 0:00:25.840 Janine A. Mordeo, who covers loans for Bloomberg News in 0:00:25.920 --> 0:00:26.360 New York. 0:00:26.800 --> 0:00:29.560 How are you, Janine, I'm well, James, thank you and 0:00:29.680 --> 0:00:31.960 good morning. Thank you for having me on today. 0:00:32.400 --> 0:00:34.680 Very excited to get your take on the markets. We're 0:00:34.680 --> 0:00:37.720 also delighted to see Mary Ellen Olson, who looks at 0:00:37.760 --> 0:00:41.120 commodities for Bloomberg Intelligence in Hong Kong. We'll be coming 0:00:41.120 --> 0:00:43.040 back to Mary Ellen a bit later in the show 0:00:43.320 --> 0:00:47.000 to talk about Indonesian high yield companies and electric vehicles. 0:00:47.159 --> 0:00:51.360 So do stay with us. But first, Janine Amadeo with 0:00:51.360 --> 0:00:55.280 Bloomberg News, you're the zen master of loans, one of 0:00:55.360 --> 0:00:58.440 my very favorite markets to cover. We've been working together 0:00:58.480 --> 0:01:00.880 for more than a decade. We were in the market 0:01:01.080 --> 0:01:03.360 on the cell side for quite a while before that, 0:01:03.920 --> 0:01:05.800 so we're really delighted to have you on the show. 0:01:05.959 --> 0:01:06.319 Thank you. 0:01:07.200 --> 0:01:12.760 Leverage loans it's a one point four trillion roughly dollar market. 0:01:13.080 --> 0:01:15.280 It's the best performing part of credit this year with 0:01:15.319 --> 0:01:18.520 gains almost eight percent, making this I think the best 0:01:18.640 --> 0:01:20.720 year since two thousand and nine, so it really does 0:01:20.920 --> 0:01:22.960 stand out. But I'm just kind of when you get 0:01:23.000 --> 0:01:24.880 a sense for you to start off, gie, what's the 0:01:24.959 --> 0:01:26.920 tone right now in the leverage loan market? 0:01:27.160 --> 0:01:31.720 Right now, we're actually having a euphoric risk one period. 0:01:32.640 --> 0:01:36.800 It had been quiet for a while when we've had 0:01:36.840 --> 0:01:42.720 some more concerns about FED raid hikes, but since there 0:01:42.840 --> 0:01:49.520 is news that they may pause, the equity markets have 0:01:49.640 --> 0:01:54.160 been soaring and doing quite well this year, and leverage 0:01:54.200 --> 0:01:56.560 loans have gone in tandem with that. 0:01:57.200 --> 0:01:59.680 So just for the people that don't know this market 0:01:59.760 --> 0:02:01.720 very well, I mean, what is a leverage loan? How 0:02:01.720 --> 0:02:03.120 do they work? Break it down for us a bit 0:02:03.400 --> 0:02:03.840 of course. 0:02:04.520 --> 0:02:08.280 So leverage loans are loans that are too sub investment 0:02:08.320 --> 0:02:13.320 grade companies. Generally, it could be for any company, even 0:02:13.320 --> 0:02:17.080 in your neighborhood. It could be, you know, a lumber plant, 0:02:17.360 --> 0:02:22.080 it could be a tire company. And how they're structured, 0:02:22.240 --> 0:02:29.760 they are generally speaking, seven years non amortizing that are 0:02:29.800 --> 0:02:34.400 bought by collateralized loan obligations who are the biggest buyers 0:02:34.480 --> 0:02:38.160 of this product, and they trade and some. 0:02:38.120 --> 0:02:40.080 Of them pretty big, right you've get talking about you know, 0:02:40.280 --> 0:02:42.600 tens of billions of dollars in some cases billions. 0:02:42.639 --> 0:02:45.680 Sometimes they could be a fifty million dollar add on, 0:02:47.080 --> 0:02:49.720 you know, to all equal to one point four trillion 0:02:49.760 --> 0:02:51.519 dollar total asset classes. 0:02:51.800 --> 0:02:53.640 And even though you've talked about high yield and you 0:02:53.639 --> 0:02:55.560 know that sort of implies risk, they are sort of 0:02:55.680 --> 0:02:57.919 household names in lots of cases. I mean, there are 0:02:58.320 --> 0:03:00.040 companies in there that we recognize from the. 0:03:00.760 --> 0:03:04.240 Right, Like we recently had a deal for Carnival Cruise 0:03:04.280 --> 0:03:08.200 Lines that came back in Carnival Corp. There's SeaWorld just 0:03:08.240 --> 0:03:13.000 did a repricing. So yes, very large. Some public companies. 0:03:13.560 --> 0:03:17.280 Many of these companies and leverage loans are companies that 0:03:17.320 --> 0:03:21.720 were bought out by private equity, so leverage buyouts, and 0:03:21.800 --> 0:03:25.320 that makes up a big portion of leverage loans M 0:03:25.360 --> 0:03:25.560 and A. 0:03:25.880 --> 0:03:30.120 So from the investor side, why would investors like them 0:03:30.639 --> 0:03:32.720 in a rising rate environment? 0:03:32.880 --> 0:03:36.800 Well, right now, the benchmark rate is called sour and 0:03:36.960 --> 0:03:39.600 it's a floating rate. We had library before, but we 0:03:39.680 --> 0:03:44.920 transition to sour, and in a rising rate environment, your 0:03:45.320 --> 0:03:50.360 benchmark rate is increasing. So the way lenders make money 0:03:50.640 --> 0:03:54.280 is the benchmark rate plus the margin plus a credit 0:03:54.360 --> 0:03:58.520 spread adjustment now for live or as well as receiving 0:03:58.600 --> 0:04:02.080 the loans at a discount generally and so under par. 0:04:02.520 --> 0:04:06.160 And so in this environment where rates have been rising, 0:04:06.600 --> 0:04:09.760 lenders are then earning more interest income. 0:04:09.920 --> 0:04:11.680 And have the margins also been increasing. 0:04:12.120 --> 0:04:15.760 The margins have been increasing. We had a difficult period 0:04:15.800 --> 0:04:19.240 of time back in twenty twenty two when we had 0:04:19.680 --> 0:04:24.359 a ton of hung debt, which is debt for deals 0:04:24.360 --> 0:04:27.960 that were closed before they were sold, to the tune 0:04:28.040 --> 0:04:33.880 of something like forty billion dollars. So after that, prices 0:04:34.240 --> 0:04:38.560 in general moved up for margins and discounts. 0:04:38.600 --> 0:04:40.599 And just to go back to that hung debt point 0:04:40.720 --> 0:04:42.880 which you raised, I mean, we're going to come back 0:04:42.880 --> 0:04:45.600 to that in a bit. But hung debt basically, as 0:04:45.600 --> 0:04:49.479 I understand it, banks are agreeing to lend money to 0:04:49.560 --> 0:04:52.800 companies and they kind of lock in a rate. But 0:04:52.839 --> 0:04:55.839 then the market changes, so you know, banks typically sell 0:04:55.880 --> 0:04:59.080 this stuff onto other investors, right, and then when the 0:04:59.080 --> 0:05:01.560 market suddenly changes, banks end up holding it and they're 0:05:01.560 --> 0:05:03.240 not they don't actually want to hold it, but they 0:05:03.279 --> 0:05:04.680 end up with it on their balance sheet. 0:05:04.440 --> 0:05:06.520 Exactly, so they're holding it on their balance sheet. A 0:05:06.560 --> 0:05:09.479 lot of that actually has been whittled down since the 0:05:09.520 --> 0:05:13.320 beginning of the year as we've been in a more 0:05:13.400 --> 0:05:20.480 risk gone mode, and deals like Nielsen Citrix have basically 0:05:20.480 --> 0:05:23.760 sold down to you know, their whole levels. 0:05:23.960 --> 0:05:25.719 So you know, you're talking about prices going up and 0:05:25.800 --> 0:05:29.799 use the word euphoric. We came into this year pretty 0:05:29.880 --> 0:05:33.839 bearish on high yield and leverage loans because of the 0:05:33.880 --> 0:05:36.720 recession outlook, because of the rates outlook, because of all 0:05:36.800 --> 0:05:39.400 the other pressures that we thought, and you know, everyone's 0:05:39.440 --> 0:05:42.800 been calling for a distress cycle for a long long time, 0:05:42.839 --> 0:05:45.520 and you know it seems to never happen. But why 0:05:45.640 --> 0:05:47.160 are prices going up right now? 0:05:48.080 --> 0:05:52.960 Well, they've been going up before this burst of new launches. 0:05:53.040 --> 0:05:55.480 The last couple of weeks, they were going up because 0:05:55.480 --> 0:05:59.760 we had basically no supply. So when colos are printed, 0:06:00.080 --> 0:06:02.479 they have nowhere to go, so they have to buy 0:06:02.720 --> 0:06:08.279 in the secondary market, so more demand prices we're going high, higher, 0:06:08.320 --> 0:06:13.000 meaning towards par. Right now, they're staying relatively steady, a 0:06:13.040 --> 0:06:16.479 little bit under ninety five cents on the dollar. But 0:06:16.680 --> 0:06:19.600 we now have a very full calendar of new issuance 0:06:20.480 --> 0:06:24.680 over twenty four deals in the general primary market. So 0:06:24.800 --> 0:06:26.920 I think we're seeing that level off a little bit, 0:06:27.040 --> 0:06:29.960 so I think it actually came down a slight bit yesterday. 0:06:30.240 --> 0:06:32.360 But even with that burst divisions we've seen I mean, 0:06:32.400 --> 0:06:34.600 still on a year to date basis, the year has 0:06:34.640 --> 0:06:36.720 been pretty slow, right, I mean, it's not much volume 0:06:36.839 --> 0:06:37.560 so far this year. 0:06:37.600 --> 0:06:42.520 Now, volume has been clearly clearly down at least over 0:06:42.640 --> 0:06:44.799 twenty percent over last year. 0:06:44.800 --> 0:06:47.240 So you could see a lot more supply but still 0:06:47.320 --> 0:06:49.920 be down on the year. Plus you've got what you know, 0:06:50.160 --> 0:06:53.479 you've described the callateralized loan obligations to CLO. They buy 0:06:53.520 --> 0:06:56.600 a lot of this stuff. We are now seeing kind 0:06:56.640 --> 0:06:58.320 of a bit of a recovery in that too, and 0:06:58.360 --> 0:07:01.679 we expect them to possibly come back, you know, quite 0:07:01.680 --> 0:07:05.360 strongly in September. So you've got this demand for still 0:07:05.440 --> 0:07:06.360 not love supply. 0:07:06.880 --> 0:07:09.240 Right, I mean, what I think we will see in 0:07:09.360 --> 0:07:12.440 September is some of this hung debt that has not 0:07:12.560 --> 0:07:15.720 come forward to back to the market so to relaunch 0:07:16.160 --> 0:07:23.200 for deals like possibly Bright Speed, maybe Twitter Elon Musk's 0:07:23.280 --> 0:07:27.160 acquisition of Twitter, which has roughly thirteen billion dollars of 0:07:27.200 --> 0:07:30.240 debt on the on the bank's bound sheets. So we 0:07:30.360 --> 0:07:33.800 may see some of that come out post labor day. 0:07:34.360 --> 0:07:37.320 Okay, but do you kind of think prices could still 0:07:37.800 --> 0:07:40.080 keep going up even though you'll get more supply. 0:07:40.280 --> 0:07:44.960 Okay, So what would keep the prices moving in the 0:07:45.000 --> 0:07:50.040 direction towards par would be if the FED decides to 0:07:50.200 --> 0:07:55.480 halt any further rate hikes, if equities continue to perform 0:07:55.600 --> 0:08:04.080 as they are, if companies performance also improves, and ratings 0:08:05.320 --> 0:08:10.440 upgrades will also help the index go higher. Things that 0:08:10.480 --> 0:08:14.440 could bring it down would be some of this hung 0:08:14.480 --> 0:08:17.520 debt that also will be coming out still at steep discounts. 0:08:17.640 --> 0:08:19.440 So then you'll have a flood of that coming in 0:08:21.280 --> 0:08:25.280 for example, you know it could be in a ninety range. 0:08:25.400 --> 0:08:28.000 You know, some of it we shall see. 0:08:27.960 --> 0:08:32.920 When we started a lot of big thanks for calling 0:08:32.960 --> 0:08:35.960 for a default rate that was quite high in leverage loans. 0:08:36.480 --> 0:08:38.400 These companies, you know, they have a lot of floating debt. 0:08:38.400 --> 0:08:41.080 As you say, fundamentally, they'll be more tested by the 0:08:41.120 --> 0:08:42.840 big rate move. It costs them a lot more to 0:08:42.920 --> 0:08:46.280 service that debt. Won't there be more distress and defaults? 0:08:46.880 --> 0:08:50.400 I mean there can be for the companies that cannot 0:08:50.440 --> 0:08:54.200 handle where their interest expenses right now. So you know, 0:08:54.240 --> 0:08:57.800 given you know where software is and where the margins 0:08:57.800 --> 0:09:01.600 are right now, that may be too much for companies 0:09:01.640 --> 0:09:05.720 that are already let's say rated B three and maybe 0:09:05.720 --> 0:09:09.079 have had felt some of the issues of a recession 0:09:11.000 --> 0:09:17.160 looming and their businesses can't handle that. So we could 0:09:17.240 --> 0:09:20.040 see some, we could see some. But you know, again, 0:09:20.080 --> 0:09:22.920 in a one point four trillion dollars the amount of 0:09:22.960 --> 0:09:25.120 default is minimal. 0:09:26.320 --> 0:09:28.240 So it's not a huge part of the market, right. 0:09:28.160 --> 0:09:30.320 And that's why it's also so attractive. So here you have, 0:09:30.720 --> 0:09:34.400 even though it's called junk loans, your returns are just 0:09:34.520 --> 0:09:35.800 hovering under eight percent. 0:09:38.000 --> 0:09:39.800 You know, how long have you been looking at this market? 0:09:39.840 --> 0:09:40.000 For? 0:09:40.559 --> 0:09:41.559 How many years? 0:09:41.920 --> 0:09:46.280 I have been in this market since the early nineties. 0:09:46.800 --> 0:09:50.359 And how many times in that period have you heard regulators? 0:09:50.400 --> 0:09:53.280 Have you heard all sorts of people on the sideline 0:09:53.320 --> 0:09:55.439 say this is a scary market, stay away. 0:09:56.280 --> 0:09:57.360 A gazillion times? 0:09:58.480 --> 0:10:02.080 And why is it there? Always? That's always fascinated me that, 0:10:02.160 --> 0:10:03.960 you know, they talk about clo is blowing up, they 0:10:04.000 --> 0:10:06.199 talk about leverage loans blowing up, but it never happens. 0:10:06.679 --> 0:10:11.880 It never happens. I just think because the product is one, 0:10:11.920 --> 0:10:16.760 it's a necessity. Because again, every every mom and pop 0:10:16.760 --> 0:10:23.679 shop to large public companies, to infrastructure, to other oil 0:10:23.720 --> 0:10:26.360 and gas companies. They all need leverage loans. 0:10:26.559 --> 0:10:29.520 The other big topic that I wanted to hit very briefly, 0:10:29.960 --> 0:10:34.760 private debt. You know that it's loans directly from from 0:10:35.200 --> 0:10:38.120 a lender to a to a borough. We used to 0:10:38.160 --> 0:10:39.880 call them bilaterals a long time ago, but now it's 0:10:39.920 --> 0:10:43.880 private debt. How does that work with leverage loans? Does 0:10:43.880 --> 0:10:46.480 it take over the business? Does it encroach? Does it 0:10:46.559 --> 0:10:48.800 is it cannibalizing or is it living side by side 0:10:48.800 --> 0:10:49.640 in perfect harmonies? 0:10:49.679 --> 0:10:53.200 You think, well, I won't say necessarily perfect harmony, but 0:10:54.200 --> 0:10:59.000 they have they have money to put to work. It's 0:11:01.679 --> 0:11:03.920 they had stepped in on a couple of deals to 0:11:05.280 --> 0:11:08.760 sort of do a bridge when our BSL broadly syndicated 0:11:08.800 --> 0:11:15.000 lown market was not as exuberant. And then we've even 0:11:15.000 --> 0:11:17.200 seeing deals where okay, they come, it's almost like a 0:11:17.240 --> 0:11:20.760 band aid, and they come and supply the money so 0:11:20.840 --> 0:11:24.280 the company could do the acquisition, and then later they 0:11:24.280 --> 0:11:27.280 bring it to the banks, so they have a role 0:11:28.280 --> 0:11:30.640 for sure. And and does it make it a little 0:11:30.679 --> 0:11:34.840 more competitive definitely, So it's not like it's the business 0:11:34.920 --> 0:11:38.160 can just go to those bankers who underwrite and do 0:11:38.200 --> 0:11:42.240 the committed debt for all these buyout deals and acquisition deals, 0:11:42.240 --> 0:11:47.160 and you know, now they have competition. But as far 0:11:47.200 --> 0:11:50.959 as I have heard from my sources, private credit is 0:11:51.000 --> 0:11:55.440 actually bringing their prices down sort of sort of to 0:11:55.559 --> 0:11:58.240 compete more with the BSL market. 0:11:58.520 --> 0:12:02.240 Interesting. So before we to Mary ellen Olsen at Bloomberg Intelligence, 0:12:02.520 --> 0:12:05.040 what's the next big thing to watch out for here? Janine, 0:12:05.080 --> 0:12:07.480 I mean, based on your experience, based on the knowledge 0:12:07.480 --> 0:12:10.560 of these markets, are you kind of more optimistic or 0:12:10.559 --> 0:12:12.560 more pessimistic about the rest of this year. 0:12:12.960 --> 0:12:17.120 I'm actually optimistic. We have seen deals in the last 0:12:17.320 --> 0:12:22.880 few weeks come out for repricing of deals, so cutting 0:12:22.960 --> 0:12:27.000 the margins. We have seen companies that are strong pulling 0:12:27.040 --> 0:12:34.000 dividends out. We are expecting a deal this week and 0:12:34.240 --> 0:12:37.000 next week to launch for ten Ago, which was one 0:12:37.000 --> 0:12:40.800 of the hung debt deals, and it all seems to 0:12:40.800 --> 0:12:43.480 be going well. Many deals are tightening at least three 0:12:43.520 --> 0:12:50.720 times upsizing and clearing out and pricing. So we only 0:12:50.720 --> 0:12:55.400 have a few weeks left of summer unfortunately, but I 0:12:55.400 --> 0:12:58.320 would say we're going to see some deals come the 0:12:58.400 --> 0:13:01.680 hung debt come and pull labor day and once that 0:13:01.720 --> 0:13:04.680 clears out, I think it's leading the path to more 0:13:04.840 --> 0:13:06.760 M and A and so what I'd be looking for 0:13:07.240 --> 0:13:10.400 is the building of M and A. I could come 0:13:10.440 --> 0:13:13.240 to the debt markets in the fourth quarter, it could 0:13:13.280 --> 0:13:16.320 maybe later in the fourth quarter, but I'd be looking 0:13:16.400 --> 0:13:18.760 for towards twenty twenty four. 0:13:18.960 --> 0:13:21.520 Great stuff. Janine Amadevo from Bloomberg News, Thank you so 0:13:21.600 --> 0:13:23.640 much for joining us. Thank you for having me read 0:13:23.679 --> 0:13:26.120 all of janine' scoops on the Bloomberg terminal and of 0:13:26.160 --> 0:13:28.679 course at Bloomberg dot com. So, as I mentioned earlier, 0:13:28.679 --> 0:13:31.920 we're delighted to welcome back on credit Edge Mary Ellen Olsen, 0:13:31.960 --> 0:13:35.160 who covers commodities for Bloomberg Intelligence based in Hong Kong. 0:13:35.559 --> 0:13:36.640 How's it going, Mary Ellen? 0:13:36.920 --> 0:13:38.880 Very good? Thank you so much for having me back 0:13:38.920 --> 0:13:39.560 again today. 0:13:39.760 --> 0:13:41.960 So I know you cover a lot of different countries 0:13:41.960 --> 0:13:45.040 and companies, but I wanted to focus on Indonesia and 0:13:45.040 --> 0:13:48.640 in particular the high yield sector there. Let's start with nickel. 0:13:49.000 --> 0:13:52.840 It's a key component of electric vehicle batteries. Indonesia as 0:13:52.880 --> 0:13:55.439 a big producer of the metal. Why is the sector 0:13:55.440 --> 0:13:56.560 in focus right now? 0:13:58.200 --> 0:14:00.720 I think the sector is in focus baker as there 0:14:00.800 --> 0:14:04.600 is more and more investment opportunities. Just this year, we've 0:14:04.679 --> 0:14:08.240 seen one high yield bond issuance from Nickel Industries, which 0:14:08.280 --> 0:14:12.040 is a nickel producer operating in Indonesia, and we've also 0:14:12.120 --> 0:14:15.640 had a couple nickel IPOs. So I think what you're 0:14:15.640 --> 0:14:21.520 seeing here is investors response to the government's regulatory policy, 0:14:21.560 --> 0:14:26.840 which is encouraging downstream processing, especially in nickel and copper 0:14:27.200 --> 0:14:28.280 and other metals. 0:14:29.040 --> 0:14:31.520 You talk about the regulation, I mean you've written actually 0:14:31.520 --> 0:14:36.640 about what you call resource nationalism. That doesn't usually sound 0:14:36.640 --> 0:14:39.000 good for investors. What's the situation in Indonesia. 0:14:40.600 --> 0:14:44.280 I think in Indonesia, what's been happening with some of 0:14:44.320 --> 0:14:48.760 the companies is that some of the export bands and 0:14:48.920 --> 0:14:54.080 downstream processing requirements have actually enabled the build out of infrastructure, 0:14:54.120 --> 0:14:57.280 which is going to bring in new investment in new 0:14:57.480 --> 0:15:02.040 opportunities over the long term. So in a way, I 0:15:02.040 --> 0:15:04.840 see it as beneficial. I think that there has been 0:15:04.840 --> 0:15:09.160 some criticism about some of the export bands from agencies 0:15:09.240 --> 0:15:13.160 like the WTO, but it's really targeted at, you know, 0:15:13.240 --> 0:15:16.880 bringing the added value on shore to Indonesia, and I 0:15:16.920 --> 0:15:20.720 think it will lead to more investment opportunities for people 0:15:20.720 --> 0:15:21.280 over time. 0:15:21.960 --> 0:15:24.720 Okay, but for foreign investors. That doesn't usually work out 0:15:24.760 --> 0:15:26.840 particularly well, and why is there an opportunity do you 0:15:26.840 --> 0:15:27.880 think in Indonesia. 0:15:27.920 --> 0:15:30.360 In Indonesia, what we're seeing is a lot of the 0:15:30.400 --> 0:15:36.120 companies that are operating there are are domestic companies, so 0:15:36.160 --> 0:15:38.440 they do have you know, they're in the loop in 0:15:38.560 --> 0:15:44.040 terms of right now helping to build out this EV 0:15:44.200 --> 0:15:47.920 supply chain especially, and it's interesting to see that with, 0:15:48.720 --> 0:15:51.960 for example, the coal mining companies, which you do have 0:15:52.120 --> 0:15:58.200 majority ownership by domestic entities, and what we're seeing is 0:15:58.200 --> 0:16:01.920 that they're trying to put some stance between themselves being 0:16:02.440 --> 0:16:08.040 predominantly driven by coal revenues and they're diversifying to support 0:16:08.160 --> 0:16:11.040 the EV supply chain. So we have a Darro Energy 0:16:11.200 --> 0:16:15.840 that's looking at building an aluminum smelter and also looking 0:16:15.880 --> 0:16:18.960 at building a hydro electric plant to support the smelter, 0:16:20.360 --> 0:16:22.440 you know, within a certain period of time. And then 0:16:22.480 --> 0:16:26.080 we have another cool company in Dica Energy, which is 0:16:26.120 --> 0:16:31.920 actually opening up a business that focuses on the two 0:16:32.000 --> 0:16:37.240 wheel EV motorcycle. So they've actually you know, come out 0:16:37.280 --> 0:16:41.640 with some new motorcycle models and they're really trying to 0:16:41.680 --> 0:16:43.560 invest in what they see as a more green and 0:16:43.600 --> 0:16:48.000 sustainable business so I think that that's kind of the 0:16:48.040 --> 0:16:50.760 path that these companies are going down because they're trying 0:16:50.840 --> 0:16:55.960 to transition to participate in the new energy EV supply chain. 0:16:56.960 --> 0:17:00.080 So that all sounds great if you're in Indonesia and 0:17:00.120 --> 0:17:03.200 you're an Indonesian company. But if I'm a credit investor, 0:17:03.680 --> 0:17:05.840 you know, an international credit investor sitting in New York 0:17:05.920 --> 0:17:08.760 or Hong Kong, why sorry, or London, why should I 0:17:08.760 --> 0:17:12.000 look at Indonesian commodities right now? 0:17:12.320 --> 0:17:15.520 Again? Because I think they're attracting a lot of investment. 0:17:15.640 --> 0:17:18.720 If you look at some of the new projects that 0:17:18.800 --> 0:17:23.800 are coming in, they're quite big. We're seeing interest from 0:17:23.840 --> 0:17:26.600 some of the major car makers to come in to 0:17:26.640 --> 0:17:29.240 invest in some nickel assets to make sure that they 0:17:29.359 --> 0:17:32.520 have the resources they need to sustain their business over 0:17:32.560 --> 0:17:37.280 the long term. And Indonesia's nickel deposits they account for 0:17:37.320 --> 0:17:41.879 about a quarter of the global reserves. So if nickel 0:17:42.119 --> 0:17:45.480 is in demand, and certainly critical minerals are in growing 0:17:45.520 --> 0:17:50.200 demand to support the EV supply chain and new energy, 0:17:51.000 --> 0:17:54.800 you having assets in Indonesia could be a bonus. 0:17:55.720 --> 0:17:57.560 And the companies that we're talking about here, I mean 0:17:58.119 --> 0:18:01.159 you mentioned a few, but are they mostly companies that 0:18:01.280 --> 0:18:04.040 fund in dollar bond markets. 0:18:03.840 --> 0:18:07.320 It's a mix. I would say that in Indonesia you 0:18:07.320 --> 0:18:09.960 do see some of the high yeal companies leaning on 0:18:10.200 --> 0:18:14.160 US dollar borrowings as well as some local currency borrowings. 0:18:15.400 --> 0:18:20.320 But we've seen what I've seen most recently is equity 0:18:20.520 --> 0:18:24.560 equity raising. So in the two IPOs that just went out, 0:18:24.560 --> 0:18:28.960 of course we're in Indonesian Rupia. For one of the 0:18:28.960 --> 0:18:33.800 company's Nickel Industries, which is a company I just wrote 0:18:33.800 --> 0:18:36.760 a b I focused the idea on, they actually attracted 0:18:36.800 --> 0:18:41.400 funding from one of the domestic companies, United Tractors, also 0:18:41.440 --> 0:18:44.120 through the equity market. So we're seeing a good mix 0:18:44.160 --> 0:18:46.320 of funding. And I think the funding is not only 0:18:46.359 --> 0:18:50.280 coming from onshore but also from offshore as well, because 0:18:50.840 --> 0:18:53.120 Nickel Industries just did that four hundred million dollar bond 0:18:53.119 --> 0:18:53.600 in April. 0:18:54.680 --> 0:18:58.080 Okay, So again, if I'm sitting outside of Indonesia, outside Asia, 0:18:58.680 --> 0:19:02.000 is there a liquid of debt that I could invest in? 0:19:02.320 --> 0:19:07.560 Yes. Across the six companies that may be more focused 0:19:07.600 --> 0:19:12.199 just on mining exclusively, there's about I think twelve billion 0:19:12.320 --> 0:19:16.640 in dollar bonds outstanding. It really ranges from company to company. 0:19:16.840 --> 0:19:20.960 Some of the well, probably the state back company, which 0:19:21.000 --> 0:19:23.119 is mind ID, which is the holding company for the 0:19:23.160 --> 0:19:26.520 state mining assets, that has the biggest amount of debt outstanding, 0:19:27.359 --> 0:19:30.400 and probably the smallest would be Nickel Industries, which has 0:19:30.440 --> 0:19:35.480 only about four hundred million. So it's a it's a 0:19:35.480 --> 0:19:37.880 good chunk of change. But really, if you look at 0:19:37.880 --> 0:19:41.120 some of the majors globally like valet or Rio Tinto, 0:19:41.520 --> 0:19:44.920 they probably on a standalone basis would have seven billion 0:19:45.160 --> 0:19:48.240 in dollar debt outstanding, So still still a lot of 0:19:48.280 --> 0:19:50.320 room to grow. But yeah, I think that it's gaining 0:19:50.400 --> 0:19:54.600 mass as we continue to see new companies trying to raise. 0:19:54.400 --> 0:19:56.440 Money and all the yields more tracts of though. 0:19:57.160 --> 0:20:00.800 Yes, definitely. I think that when you look at the 0:20:00.800 --> 0:20:05.600 coal companies, so previously or historically, the major issuers have 0:20:05.640 --> 0:20:09.159 been the coal companies, and they've always traded wide simply 0:20:09.240 --> 0:20:11.960 because they have, you know, the mounting coal risks and 0:20:12.200 --> 0:20:16.240 ESG concerns, So even within the high yield category, they've 0:20:16.240 --> 0:20:20.400 tended to trade quite wide to their peer group. So yeah, 0:20:20.800 --> 0:20:23.240 YELD in the high yield sector, I think Indonesian high 0:20:23.280 --> 0:20:26.640 YELD definitely trades wide to what you would get overseas. 0:20:27.040 --> 0:20:30.159 And I was looking at that before the podcast. And 0:20:30.800 --> 0:20:35.320 it's interesting for let's say Indeka Energy. At Daro Energy, 0:20:35.320 --> 0:20:39.800 they have bonds due in twenty twenty four and they're 0:20:39.880 --> 0:20:46.760 yielding over seven percent. So for a double B minus 0:20:46.880 --> 0:20:50.640 US dollar corporate bond, it's it's below seven percent. It's 0:20:50.640 --> 0:20:53.320 about six and a half percent at the moment at 0:20:53.320 --> 0:20:58.280 the one year mark. So yeah, they're yielding yielding more. 0:20:58.359 --> 0:21:00.399 And I think that those bonds for the coals have 0:21:00.480 --> 0:21:04.200 come in a lot recently simply because they've the core 0:21:04.280 --> 0:21:06.800 prices have been so high and they've been able to 0:21:06.880 --> 0:21:09.920 amass such a great amount of cash on their balance sheet, 0:21:09.920 --> 0:21:13.520 which has helped them reduce some of the refinancing risks. 0:21:13.520 --> 0:21:15.240 So the room to films are rarely further do you 0:21:15.280 --> 0:21:15.800 think from here? 0:21:17.240 --> 0:21:19.720 I think so. The bonds are still trading a little 0:21:19.720 --> 0:21:25.119 bit below par, so you could see some upside for 0:21:25.200 --> 0:21:28.080 them as they close it on maturity, especially since the 0:21:28.119 --> 0:21:32.520 maturity is only a year away. And certainly for a Daro. 0:21:32.720 --> 0:21:35.520 A Daro is actually a it has a triple B 0:21:35.640 --> 0:21:39.560 minus rating from Fitch and it's still offering a a 0:21:39.680 --> 0:21:43.199 yield in excess of seven percent, and it had at 0:21:43.240 --> 0:21:46.520 the end of December or at the end of March 0:21:46.560 --> 0:21:49.040 it had about three billion in cash and its balance 0:21:49.080 --> 0:21:53.360 shape so it definitely has limited relative to about seven 0:21:53.440 --> 0:21:56.800 hundred and fifty million of bonds outstanding, So you know, 0:21:57.000 --> 0:22:01.280 it seems as though they're liquid enough and you know, 0:22:01.320 --> 0:22:03.800 to support that bond repayment within a year's time. 0:22:04.760 --> 0:22:06.840 Cool though, I mean, I know it's perform though, But 0:22:06.920 --> 0:22:08.920 isn't that sort of a dying business and everyone wants 0:22:08.960 --> 0:22:11.440 to get out because as you mentioned, the ESG risk 0:22:11.520 --> 0:22:12.240 is quite high. 0:22:12.359 --> 0:22:15.120 You know, I think it's a transitioning business. I wouldn't 0:22:15.160 --> 0:22:20.359 be surprised to see less refinancing in the dollar bond market. 0:22:20.600 --> 0:22:23.639 But I'm certainly seeing a lot of companies right now 0:22:25.359 --> 0:22:29.359 looking to acquire coal assets, whether they're an Indian steel 0:22:29.359 --> 0:22:33.720 company or there's another Indonesia company that is a coal 0:22:33.760 --> 0:22:36.119 service and contractor Booma, which is looking at some of 0:22:36.160 --> 0:22:40.600 the BHP assets in Australia. So I'm not sure exactly 0:22:40.640 --> 0:22:43.920 how those assets are going to be financed going forward, 0:22:44.000 --> 0:22:46.920 but there is an interest among players to still acquire 0:22:46.960 --> 0:22:50.000 those assets. And you've got to remember in Indonesia, I 0:22:50.040 --> 0:22:53.120 think that you know the majority of their power generation 0:22:53.240 --> 0:22:56.159 is coming from coal fired assets. Still, it'll take a 0:22:56.200 --> 0:22:58.600 while for that to go It'll take a while for 0:22:58.640 --> 0:22:59.800 that to kind of go away. 0:23:00.119 --> 0:23:01.840 Yeah, on the on the flip side of the nickel thing, 0:23:01.840 --> 0:23:03.679 I mean that plays into the ev story, which is 0:23:03.680 --> 0:23:05.920 such a hot theme, and it does kind of play 0:23:05.920 --> 0:23:10.320 into the the E and the ESG. Is there a 0:23:10.359 --> 0:23:11.760 lot of upside in those bones? Do you think the 0:23:12.160 --> 0:23:13.080 nickel side. 0:23:13.600 --> 0:23:17.480 Yeah, it's a it's a single B B plus B 0:23:17.560 --> 0:23:20.720 one rated credit. So obviously that's at the lower end 0:23:20.880 --> 0:23:23.600 of the high yield spectrum. So it does, you know, 0:23:23.640 --> 0:23:25.880 indicate that there's more risk in a bond like that 0:23:25.920 --> 0:23:32.880