1 00:00:18,200 --> 00:00:20,760 Speaker 1: Hello, and welcome to the Credit Edge, a weekly markets podcast. 2 00:00:20,880 --> 00:00:23,400 Speaker 1: My name is James Crumbie. I'm a senior editor at Bloomberg. 3 00:00:23,880 --> 00:00:26,439 Speaker 1: This week, we're very pleased to welcome Mary Ellen Olson 4 00:00:26,480 --> 00:00:28,840 Speaker 1: and Preda Silver, both with Bloomberg Intelligence. How are you 5 00:00:28,880 --> 00:00:32,640 Speaker 1: both doing good? Thank you, Thanks so much for joining usday. 6 00:00:32,680 --> 00:00:35,040 Speaker 1: We're very excited to get your thoughts on all things credit. 7 00:00:35,560 --> 00:00:38,320 Speaker 1: By the way, Bloomberg Intelligence is part of Bloomberg's research 8 00:00:38,440 --> 00:00:41,279 Speaker 1: arm of five hundred analysts and strategists. This week, we're 9 00:00:41,320 --> 00:00:43,839 Speaker 1: going to focus on companies based in Asia that have 10 00:00:43,960 --> 00:00:47,080 Speaker 1: broad international relevance. Before we do, though, I'd just like 11 00:00:47,120 --> 00:00:49,280 Speaker 1: to get both your thoughts on the tone in your market. 12 00:00:49,360 --> 00:00:52,159 Speaker 1: There's a lot going on with the economy with rates, 13 00:00:52,200 --> 00:00:54,520 Speaker 1: also in geopolitics. There was a bit of a wobble 14 00:00:54,560 --> 00:00:58,000 Speaker 1: earlier this month, but we've mostly recovered those losses. There's 15 00:00:58,040 --> 00:01:00,920 Speaker 1: still more demand than supply for credit, at least that's 16 00:01:00,960 --> 00:01:03,560 Speaker 1: the case when I look at US and European markets. 17 00:01:04,520 --> 00:01:07,000 Speaker 1: So people are generally bullish on the prospects of a 18 00:01:07,000 --> 00:01:09,720 Speaker 1: soft landing in the US, Inflation coming down and the 19 00:01:09,720 --> 00:01:12,440 Speaker 1: FED starting to ease. What gives us pause. There is 20 00:01:12,440 --> 00:01:16,120 Speaker 1: a continuation of the default and bankruptcy trend. Weheak companies 21 00:01:16,160 --> 00:01:18,319 Speaker 1: are still under a lot of pressure. Plus we all 22 00:01:18,319 --> 00:01:21,160 Speaker 1: have the US elections, look forward to potentially some very 23 00:01:21,160 --> 00:01:24,800 Speaker 1: big changes on trade, taxes and immigration policy coming. But 24 00:01:24,880 --> 00:01:27,679 Speaker 1: when you look at the markets you cover in Asia, 25 00:01:27,959 --> 00:01:29,920 Speaker 1: how would you describe the outlook through year end? Are 26 00:01:29,920 --> 00:01:33,119 Speaker 1: people generally bullish or bearish? Let's start with you Mary 27 00:01:33,120 --> 00:01:35,400 Speaker 1: Ellen's what's the outlook there? 28 00:01:36,360 --> 00:01:38,800 Speaker 2: I would say that for at least in the ingrestment 29 00:01:39,000 --> 00:01:43,800 Speaker 2: investment grade space, the regional outlook is pretty positive. Just 30 00:01:43,880 --> 00:01:47,040 Speaker 2: take for example India. You know SMP has a positive 31 00:01:47,040 --> 00:01:50,640 Speaker 2: outlook on the credit rating for the Indian sovereign, which 32 00:01:50,720 --> 00:01:53,120 Speaker 2: you know does go back to the fact that it's 33 00:01:53,160 --> 00:01:57,960 Speaker 2: having such strong GDP growth and the government's really supporting 34 00:01:58,000 --> 00:02:01,360 Speaker 2: infrastructure development and pushing and desh drill development as well. 35 00:02:01,480 --> 00:02:05,200 Speaker 2: So all that does add up to some credit positives 36 00:02:05,240 --> 00:02:09,160 Speaker 2: for the country as a whole. And similar situation I 37 00:02:09,160 --> 00:02:12,440 Speaker 2: think in Indonesia with having the elections done this year 38 00:02:12,600 --> 00:02:15,520 Speaker 2: and more definition in terms of what's coming in terms 39 00:02:15,560 --> 00:02:19,480 Speaker 2: of policy. But like you said, the big challenge is 40 00:02:19,560 --> 00:02:21,639 Speaker 2: just supply in the investment grade space and in the 41 00:02:21,680 --> 00:02:24,680 Speaker 2: high yield space, so we're not getting any and I 42 00:02:24,800 --> 00:02:28,920 Speaker 2: cover the basic material sector. And for India, what I 43 00:02:29,040 --> 00:02:33,080 Speaker 2: saw was since twenty twenty two, we've only had about 44 00:02:33,080 --> 00:02:36,720 Speaker 2: four billion in issuance. Meanwhile, there's been about twelve billion 45 00:02:36,840 --> 00:02:40,480 Speaker 2: in debt that's been repaid, so there's not much, not 46 00:02:40,560 --> 00:02:41,560 Speaker 2: much going on there. 47 00:02:41,800 --> 00:02:44,040 Speaker 1: That's sorry, that's the gross level of issues, because in 48 00:02:44,080 --> 00:02:45,440 Speaker 1: the US it's more of a sort of a you know, 49 00:02:45,639 --> 00:02:48,000 Speaker 1: there's a lot of grossippi but not enough net. So 50 00:02:48,120 --> 00:02:50,239 Speaker 1: it seems like the same kind of situation in India that 51 00:02:50,480 --> 00:02:53,200 Speaker 1: the net is negative. 52 00:02:53,280 --> 00:02:54,840 Speaker 2: Is right, And it's all going back to just the 53 00:02:54,840 --> 00:02:57,120 Speaker 2: fact that they're funding on shore, which is a positive 54 00:02:57,120 --> 00:02:59,400 Speaker 2: from a credit perspective, but it's not so great for 55 00:02:59,520 --> 00:03:01,000 Speaker 2: the hard currency market. 56 00:03:01,600 --> 00:03:04,280 Speaker 1: Yeah, okay, how about you pre what are you thinking 57 00:03:04,320 --> 00:03:04,519 Speaker 1: of that? 58 00:03:05,600 --> 00:03:09,640 Speaker 3: So, James, I cover two main markets created China and Japan, 59 00:03:10,200 --> 00:03:13,280 Speaker 3: and they are in two very different places. So if 60 00:03:13,280 --> 00:03:18,640 Speaker 3: you take China for instance, they're facing deflationary pressure, slowing 61 00:03:18,639 --> 00:03:22,400 Speaker 3: consumer spending, and also a mounting debt burden that needs 62 00:03:22,440 --> 00:03:25,320 Speaker 3: to be dealt with, and so all of that is 63 00:03:25,400 --> 00:03:30,400 Speaker 3: leading to low domestic borrowing costs. And coming back to 64 00:03:30,400 --> 00:03:33,480 Speaker 3: the question that you ask about supplying similar to what 65 00:03:33,560 --> 00:03:36,200 Speaker 3: Mary Allen is seeing in her places, it's leading to 66 00:03:36,240 --> 00:03:39,440 Speaker 3: a dearth of issuance in offshore. 67 00:03:39,080 --> 00:03:40,480 Speaker 4: Markets in the dollar market. 68 00:03:41,120 --> 00:03:44,280 Speaker 3: And the challenge around that is China used to be 69 00:03:44,400 --> 00:03:49,560 Speaker 3: forty percent of the GP Margan Asia Credit Index and 70 00:03:49,600 --> 00:03:53,960 Speaker 3: that's shrinking. And unlike in equities, in fixed income, you 71 00:03:54,080 --> 00:03:58,280 Speaker 3: need to put money and coupons back to work and 72 00:03:58,320 --> 00:04:00,680 Speaker 3: where do you go for that? Right, So that causing 73 00:04:00,720 --> 00:04:06,800 Speaker 3: a challenge for investors, especially on the PM side. Now Japan, 74 00:04:07,200 --> 00:04:12,240 Speaker 3: finally after decades, we're starting to see wage inflation, which 75 00:04:12,280 --> 00:04:15,040 Speaker 3: is good. But then as soon as the central bank 76 00:04:15,120 --> 00:04:19,680 Speaker 3: starts started to move. You saw what happened two weeks ago, 77 00:04:20,040 --> 00:04:23,120 Speaker 3: and I think the end result of that is the 78 00:04:23,160 --> 00:04:28,080 Speaker 3: boj is going to slow walk is interest rate normalization policy, 79 00:04:28,080 --> 00:04:31,600 Speaker 3: at least on the policy rates side. And yeah, so 80 00:04:32,240 --> 00:04:37,640 Speaker 3: two different places, two different markets, very interesting, nonetheless, Yeah, definitely. 81 00:04:37,880 --> 00:04:40,479 Speaker 1: So let's drill down into the are you cover, maryl 82 00:04:40,520 --> 00:04:43,839 Speaker 1: and you cover commodities, basic materials. They're under pressure in 83 00:04:43,880 --> 00:04:46,760 Speaker 1: some parts because of weakness in the Chinese economy. Let's 84 00:04:46,800 --> 00:04:49,360 Speaker 1: start there. When you look around all the companies you cover, 85 00:04:49,400 --> 00:04:51,800 Speaker 1: what's the impact of China's slow down. 86 00:04:53,200 --> 00:04:55,159 Speaker 2: Well, that really kind of blew up just over the 87 00:04:55,160 --> 00:04:58,200 Speaker 2: past couple of weeks with China saying that they were 88 00:04:58,200 --> 00:05:02,080 Speaker 2: going to cut some of their still production and it 89 00:05:02,120 --> 00:05:05,800 Speaker 2: has had a knock on impact for my companies, in 90 00:05:05,839 --> 00:05:09,320 Speaker 2: particular the Australian miners. Some of the high yield companies 91 00:05:09,440 --> 00:05:13,800 Speaker 2: like ford Eskew and Mineral Resources, which depend on iron 92 00:05:13,800 --> 00:05:16,800 Speaker 2: oi as part of their core business, they they're going 93 00:05:16,839 --> 00:05:19,640 Speaker 2: to be hurt by following iron oid prices, especially if 94 00:05:19,680 --> 00:05:22,000 Speaker 2: it falls to the extent that that we're seeing. It 95 00:05:22,040 --> 00:05:24,080 Speaker 2: seems like people are trying to push a story that 96 00:05:24,200 --> 00:05:27,839 Speaker 2: this time it's different and that the one hundred dollars threshold, 97 00:05:27,920 --> 00:05:31,719 Speaker 2: you know, could actually not no longer be the threshold 98 00:05:31,760 --> 00:05:35,560 Speaker 2: since we've passed it, So definitely saying that in Australia, 99 00:05:35,640 --> 00:05:37,320 Speaker 2: and also it's a knock on effect to some of 100 00:05:37,360 --> 00:05:42,040 Speaker 2: the Indian steel companies as well, with the lower prices 101 00:05:42,080 --> 00:05:46,160 Speaker 2: actually potentially impacting their margins, offset to some extent by 102 00:05:46,160 --> 00:05:49,800 Speaker 2: the fact that there's such strong domestic demand in India, 103 00:05:49,960 --> 00:05:54,640 Speaker 2: but still these companies have really large capex budgets and 104 00:05:54,680 --> 00:05:56,640 Speaker 2: they're in the middle of them, so any kind of 105 00:05:56,680 --> 00:06:00,480 Speaker 2: margin pressure you know, could could hurt or delay their 106 00:06:00,520 --> 00:06:03,000 Speaker 2: deleveraging and have an impact on their credit. 107 00:06:03,320 --> 00:06:06,000 Speaker 1: The minus of iron order. They got used to pretty 108 00:06:06,000 --> 00:06:08,159 Speaker 1: low prices in the past, and then they consolidated and 109 00:06:08,160 --> 00:06:09,960 Speaker 1: they've become more efficient. Have they not just got a 110 00:06:09,960 --> 00:06:12,839 Speaker 1: massive buffer before they start to kind of reach anywhere 111 00:06:12,880 --> 00:06:14,159 Speaker 1: near their cost of production. 112 00:06:14,920 --> 00:06:15,120 Speaker 4: Yeah. 113 00:06:15,200 --> 00:06:17,760 Speaker 2: Yeah, especially some of the Australian miners, because they do 114 00:06:17,800 --> 00:06:21,919 Speaker 2: have low costs. But I would say that, you know, 115 00:06:22,000 --> 00:06:23,960 Speaker 2: in the high yield space, and that's kind of the 116 00:06:24,000 --> 00:06:27,800 Speaker 2: space that I'm covering in Australia, there's still idiosyncratic risk 117 00:06:27,880 --> 00:06:30,039 Speaker 2: for these companies. And I think for a company like 118 00:06:30,520 --> 00:06:33,640 Speaker 2: Mineral Resources, what we're seeing is it's partly iron or 119 00:06:33,680 --> 00:06:36,640 Speaker 2: it's partly lithium. They're both under pressure. They have a 120 00:06:36,680 --> 00:06:40,120 Speaker 2: lot of debt and recently heavy light on asset sales 121 00:06:40,120 --> 00:06:43,520 Speaker 2: to kind of bolster their balance sheet. So it is 122 00:06:43,560 --> 00:06:47,520 Speaker 2: something that could pressure the company within the high yield segment. 123 00:06:47,920 --> 00:06:50,560 Speaker 2: And for dies Q, on the other hand, hand, has 124 00:06:50,800 --> 00:06:54,000 Speaker 2: a lot of liquidity, you know, billions on the balance sheet, 125 00:06:54,520 --> 00:06:58,280 Speaker 2: but it has other risks that are shaping the company's 126 00:06:58,279 --> 00:07:01,680 Speaker 2: future in terms of where it might deploy capital. It's 127 00:07:01,760 --> 00:07:04,400 Speaker 2: kind of shifted away from hydrogen at the moment, is 128 00:07:04,440 --> 00:07:06,760 Speaker 2: looking at renewable energy, and we're not sure how that 129 00:07:06,800 --> 00:07:11,800 Speaker 2: execution will unfold. And then of course there's some you know, 130 00:07:11,880 --> 00:07:15,440 Speaker 2: ongoing issues in terms of staffing, you know, with lots 131 00:07:15,520 --> 00:07:19,960 Speaker 2: of resignations from the company, which has weighed on or 132 00:07:19,960 --> 00:07:26,520 Speaker 2: created uncertainty about its strategic direction. So for both these companies, 133 00:07:26,680 --> 00:07:29,800 Speaker 2: iron Ore is still dominant. But then there's also these 134 00:07:29,800 --> 00:07:32,240 Speaker 2: other problems that are kind of coalescing at the same time, 135 00:07:32,280 --> 00:07:34,680 Speaker 2: which I think could could spell some trouble for them 136 00:07:34,720 --> 00:07:36,160 Speaker 2: if the situation gets bad. 137 00:07:36,720 --> 00:07:38,960 Speaker 1: Do you expect to see a lot of downgrades or 138 00:07:39,120 --> 00:07:40,360 Speaker 1: debt defaults because of this? 139 00:07:41,120 --> 00:07:44,120 Speaker 2: I would say so. The four companies that I've kind 140 00:07:44,120 --> 00:07:47,480 Speaker 2: of pulled into my analysis over the past few days, 141 00:07:48,000 --> 00:07:52,000 Speaker 2: probably the most at risk of a of any kind 142 00:07:52,040 --> 00:07:54,200 Speaker 2: of rating pressure would be min Ray because of its 143 00:07:54,320 --> 00:07:57,640 Speaker 2: large or heavy debt burden. But it does have access 144 00:07:57,680 --> 00:08:02,840 Speaker 2: to other assets that it could sell, so still watching that, 145 00:08:02,960 --> 00:08:07,239 Speaker 2: but it's it's probably more at risk just give because 146 00:08:07,240 --> 00:08:10,840 Speaker 2: of its current leverage, whereas ford Esque has lots of 147 00:08:11,680 --> 00:08:15,400 Speaker 2: strong liquidity and the Indian steel companies, they could come 148 00:08:15,440 --> 00:08:18,000 Speaker 2: under pressure depending on how bad the situation gets but 149 00:08:18,040 --> 00:08:20,200 Speaker 2: they do have the offset because of the strong steel 150 00:08:20,240 --> 00:08:23,040 Speaker 2: demand and also because they have a really strong track 151 00:08:23,040 --> 00:08:26,080 Speaker 2: record for delivering during the good periods, so they have 152 00:08:26,200 --> 00:08:29,680 Speaker 2: a lot of credit i think from the rating agencies, 153 00:08:30,640 --> 00:08:33,360 Speaker 2: so that should help them kind of weather any kind 154 00:08:33,360 --> 00:08:34,679 Speaker 2: of short term blips. 155 00:08:35,480 --> 00:08:38,000 Speaker 1: When you mentioned that might be intil minray, what's. 156 00:08:37,800 --> 00:08:43,160 Speaker 2: That minimal Resources. That's the lithium slash iron or producer, 157 00:08:43,200 --> 00:08:46,320 Speaker 2: slash oily gas producer in Australia. 158 00:08:47,040 --> 00:08:49,200 Speaker 1: Okay, I thought everyone loved the lithium at the moment. 159 00:08:49,200 --> 00:08:51,200 Speaker 1: It's going into all of the electronics. 160 00:08:51,600 --> 00:08:51,840 Speaker 4: Ah. 161 00:08:51,920 --> 00:08:54,000 Speaker 2: Yeah, I think that there's with the easing off of 162 00:08:54,040 --> 00:08:58,280 Speaker 2: some of the ev demand, the pricing has come off, 163 00:08:58,480 --> 00:09:01,760 Speaker 2: and you know, I think some of these large companies, 164 00:09:01,760 --> 00:09:06,680 Speaker 2: for example, with mineral resources, they had planned on capacity 165 00:09:06,720 --> 00:09:09,440 Speaker 2: expansion to help them kind of bring some of their costs. 166 00:09:09,480 --> 00:09:12,199 Speaker 2: But bringing on capacity a middle low price cycle actually 167 00:09:12,240 --> 00:09:15,040 Speaker 2: can not always make sense. So it can it kind 168 00:09:15,040 --> 00:09:19,320 Speaker 2: of can shift the playing field, and it's a little 169 00:09:19,360 --> 00:09:22,319 Speaker 2: bit of what we're seeing happening there. But again I 170 00:09:22,360 --> 00:09:25,120 Speaker 2: think it's more just this idea that it has taken 171 00:09:25,120 --> 00:09:29,000 Speaker 2: on a lot of leverage over the past few years, 172 00:09:29,120 --> 00:09:32,800 Speaker 2: which and it's being watched, i'd say. 173 00:09:32,880 --> 00:09:34,920 Speaker 1: Talking of talking of companies that are being watched for 174 00:09:34,960 --> 00:09:37,640 Speaker 1: their leverage, the Danta was one that we talked about 175 00:09:37,640 --> 00:09:40,600 Speaker 1: a lot last year on this show with you Mary Ellen. 176 00:09:41,280 --> 00:09:44,600 Speaker 1: And you know, it's an Indian company that successfully restructured 177 00:09:44,600 --> 00:09:46,839 Speaker 1: in January and was upgraded to be minus in July. 178 00:09:47,360 --> 00:09:49,000 Speaker 1: So are they out of the woods? Do we really 179 00:09:49,280 --> 00:09:50,520 Speaker 1: have to worry about them anymore? 180 00:09:52,120 --> 00:09:55,480 Speaker 2: I think that things are looking definitely up for the company. 181 00:09:56,559 --> 00:09:59,959 Speaker 2: It's two major issues were it's high leverage and also 182 00:10:00,120 --> 00:10:03,440 Speaker 2: it's corporate structure, which has always been very complex, and 183 00:10:03,720 --> 00:10:07,880 Speaker 2: they are trying to address both of those issues and 184 00:10:08,800 --> 00:10:13,000 Speaker 2: they've made a lot of progress in terms of delevering 185 00:10:13,200 --> 00:10:18,400 Speaker 2: at the holding company level. What they've said recently is 186 00:10:18,440 --> 00:10:21,120 Speaker 2: that they want to reduce the cost of debt at 187 00:10:21,120 --> 00:10:25,400 Speaker 2: the operating company level. If that transfers into the holding 188 00:10:25,440 --> 00:10:27,640 Speaker 2: company level, then you you know, it could give rise 189 00:10:27,679 --> 00:10:30,640 Speaker 2: to even another dollar debt issuance's there's been talk of 190 00:10:30,679 --> 00:10:34,240 Speaker 2: the market that the Vedanta Limited could do a debut 191 00:10:34,280 --> 00:10:37,440 Speaker 2: bond and perhaps could finance at a you know, I 192 00:10:37,440 --> 00:10:39,960 Speaker 2: think that company could perhaps finance at a lower rate 193 00:10:40,960 --> 00:10:43,840 Speaker 2: simply because it's closer to the operating assets. 194 00:10:43,760 --> 00:10:46,000 Speaker 1: That would be in the US dollar market that. 195 00:10:45,960 --> 00:10:49,720 Speaker 2: Would be a dollar debt. Yeah, it's still really it's 196 00:10:49,760 --> 00:10:52,120 Speaker 2: only you know, something that's been kind of mentioned or 197 00:10:52,160 --> 00:10:55,520 Speaker 2: speculated in the news, but it's it's a possibility simply 198 00:10:55,559 --> 00:10:59,640 Speaker 2: because they are focused so much on bringing down their 199 00:10:59,640 --> 00:11:03,679 Speaker 2: interest costs and also affecting the D merger because they 200 00:11:03,679 --> 00:11:09,200 Speaker 2: want to list each of the five unlisted kind of 201 00:11:09,240 --> 00:11:12,840 Speaker 2: operating divisions at the moment in order to unlock value. 202 00:11:13,320 --> 00:11:16,640 Speaker 2: So they're restructuring, they're cleaning up their balance sheet, they're 203 00:11:16,640 --> 00:11:19,640 Speaker 2: lowering their interest costs, and all these things will eventually 204 00:11:20,080 --> 00:11:22,400 Speaker 2: help solve those two big hurdles, which were the high 205 00:11:22,480 --> 00:11:26,560 Speaker 2: leverage and the corporate complexity, especially if you think that 206 00:11:26,600 --> 00:11:29,480 Speaker 2: the D merger would help increase the transparency of the 207 00:11:29,480 --> 00:11:33,640 Speaker 2: group as a whole and hopefully limited structural supportination. 208 00:11:34,120 --> 00:11:36,000 Speaker 1: But so you think that they will have market access 209 00:11:36,000 --> 00:11:37,480 Speaker 1: if they want to go to the dollar market, they 210 00:11:37,520 --> 00:11:38,120 Speaker 1: would get it. 211 00:11:38,640 --> 00:11:40,960 Speaker 2: I would say, you know, it's amazing what they've done 212 00:11:41,080 --> 00:11:45,920 Speaker 2: over the past few weeks. In I think the operating 213 00:11:45,960 --> 00:11:49,960 Speaker 2: company I just wrote something on it. It's raised something 214 00:11:50,000 --> 00:11:53,559 Speaker 2: close to two billion. I don't know exactly how all 215 00:11:53,600 --> 00:11:56,080 Speaker 2: that money is going to be used. That was you know, 216 00:11:56,120 --> 00:11:59,320 Speaker 2: it was through a share sale, a stake sale, and 217 00:11:59,360 --> 00:12:05,520 Speaker 2: it's subsidy and the other one I can't remember, but 218 00:12:05,600 --> 00:12:09,120 Speaker 2: in just the dividends for upstreaming from this subsidiary, which 219 00:12:09,160 --> 00:12:11,880 Speaker 2: was the zinc company. So with those monies, I think 220 00:12:11,960 --> 00:12:16,400 Speaker 2: it can really help strengthen its credit profile, depending on 221 00:12:16,440 --> 00:12:19,080 Speaker 2: how they're deployed, and I think that would give it 222 00:12:19,120 --> 00:12:19,840 Speaker 2: market access. 223 00:12:20,240 --> 00:12:24,640 Speaker 1: Fundamentally, this is an improved and sustainably you know, better 224 00:12:25,120 --> 00:12:28,959 Speaker 1: company that's that's on an up trajectory compared to when 225 00:12:28,960 --> 00:12:31,080 Speaker 1: we last looked at it on this show. Let's say 226 00:12:31,200 --> 00:12:32,800 Speaker 1: it wasn't a year ago, but it was last year. 227 00:12:33,160 --> 00:12:35,200 Speaker 1: They weren't really doing very well. They were blowing up, 228 00:12:35,240 --> 00:12:37,720 Speaker 1: they were in trouble, and now they turned themselves around 229 00:12:37,880 --> 00:12:40,160 Speaker 1: to what extent You think though, that this kind of 230 00:12:40,160 --> 00:12:44,760 Speaker 1: turnaround is the effects of this excess liquidity, this you know, 231 00:12:45,320 --> 00:12:49,600 Speaker 1: over demand for lack of supply of credit, I mean, 232 00:12:49,920 --> 00:12:51,880 Speaker 1: or investors just piling because they've got nothing else to 233 00:12:51,880 --> 00:12:52,840 Speaker 1: buy now. 234 00:12:52,960 --> 00:12:56,680 Speaker 2: I think in this case, you know, going back in time, 235 00:12:56,720 --> 00:13:00,400 Speaker 2: the operating assets of Danta are always good, and it 236 00:13:00,440 --> 00:13:03,760 Speaker 2: was just that they had overleveraged the company and they 237 00:13:03,800 --> 00:13:09,400 Speaker 2: had a difficult corporate structure. So the turnaround is there. 238 00:13:09,600 --> 00:13:12,160 Speaker 2: You know, consensus is seeing you know, something like a 239 00:13:12,200 --> 00:13:16,480 Speaker 2: twenty three percent uptick in EBDA generation in twenty five. 240 00:13:17,160 --> 00:13:20,440 Speaker 2: They are building capacity, they're investing heavily to kind of 241 00:13:20,440 --> 00:13:23,560 Speaker 2: consolidate their position in India, which is a growing market. 242 00:13:23,600 --> 00:13:26,240 Speaker 2: So I think it does have a positive story on 243 00:13:26,280 --> 00:13:30,000 Speaker 2: the operating side if you can make sure the other 244 00:13:30,280 --> 00:13:32,120 Speaker 2: the bad bits kind of go away. 245 00:13:32,200 --> 00:13:35,120 Speaker 1: Are their opportunities relative value otherwise for. 246 00:13:36,760 --> 00:13:42,000 Speaker 2: Audience in general and the sector in Verdanza, in Danta. 247 00:13:42,120 --> 00:13:46,599 Speaker 2: You know, it's interesting the bonds themselves are no longer distressed, 248 00:13:46,720 --> 00:13:49,480 Speaker 2: so they've all really snapped back recently given some of 249 00:13:49,520 --> 00:13:52,320 Speaker 2: the positive news flow that we've seen. So I guess 250 00:13:52,360 --> 00:13:55,080 Speaker 2: the next point would be if they actually were on 251 00:13:55,120 --> 00:13:58,520 Speaker 2: the market doing some dollar debt. And I think that's 252 00:13:58,559 --> 00:14:00,439 Speaker 2: why the company is still kind of relevant to me, 253 00:14:00,559 --> 00:14:03,440 Speaker 2: because it still has a large amount of dollar debt 254 00:14:03,440 --> 00:14:07,920 Speaker 2: outstanding in the range of about three billion, and if 255 00:14:07,920 --> 00:14:11,480 Speaker 2: it chooses to kind of refinance that at the or 256 00:14:11,600 --> 00:14:14,600 Speaker 2: issue more debt at the operating company level, it's still 257 00:14:14,640 --> 00:14:16,960 Speaker 2: going to be a big issuer. And it's still going 258 00:14:17,000 --> 00:14:19,280 Speaker 2: to be issuing at high yield rates, so the yield 259 00:14:19,320 --> 00:14:24,760 Speaker 2: should be should be good or interesting from an investors perspective. 260 00:14:25,240 --> 00:14:26,560 Speaker 1: Do we expect that to happen this year? 261 00:14:27,400 --> 00:14:32,240 Speaker 2: I don't know. I think it's possible, simply because they're expert. 262 00:14:32,280 --> 00:14:36,320 Speaker 2: They're moving so fast in terms of restructuring and raising 263 00:14:36,400 --> 00:14:39,080 Speaker 2: new money that and they want to close the de 264 00:14:39,200 --> 00:14:42,560 Speaker 2: merger certainly they're saying within the next two or three quarters. 265 00:14:43,000 --> 00:14:46,040 Speaker 2: So I think it will all come together and it 266 00:14:46,040 --> 00:14:49,160 Speaker 2: could happen quickly if they get the approval forger the 267 00:14:49,200 --> 00:14:51,080 Speaker 2: de merger process sooner rather than later. 268 00:14:51,560 --> 00:14:54,160 Speaker 1: To find out, we will definitely be reading your analysis. 269 00:14:54,200 --> 00:14:57,440 Speaker 1: Mary Ellen Nelson Intelligence. Thank you also have here on 270 00:14:57,440 --> 00:14:59,680 Speaker 1: the show. As I mentioned pre to Silva, who comes 271 00:14:59,680 --> 00:15:01,960 Speaker 1: financial and we missed you last month when we did 272 00:15:01,960 --> 00:15:05,400 Speaker 1: a special on eighty one's we focused mostly on Europe 273 00:15:05,440 --> 00:15:08,840 Speaker 1: in the US there because unfortunately you were not available. 274 00:15:08,840 --> 00:15:12,960 Speaker 1: But you're back now. So, according to Arnold Kakuda in 275 00:15:13,000 --> 00:15:16,280 Speaker 1: the US preferred to get no respect. It's the Rodney 276 00:15:16,360 --> 00:15:18,840 Speaker 1: danger field of securities. That's a bit of an obscure 277 00:15:18,880 --> 00:15:23,200 Speaker 1: reference for some of our audience, but they just seem 278 00:15:23,280 --> 00:15:27,560 Speaker 1: to be overlooked or underappreciated. According to Arnold, what's the 279 00:15:27,600 --> 00:15:31,200 Speaker 1: eighty one market doing over there? Pre Is it recovered now? 280 00:15:31,240 --> 00:15:31,560 Speaker 4: Fully? 281 00:15:31,720 --> 00:15:32,960 Speaker 1: Is it back on track? 282 00:15:33,600 --> 00:15:33,840 Speaker 4: Yes? 283 00:15:33,960 --> 00:15:36,680 Speaker 3: So fully recovered, And I think there are a couple 284 00:15:36,720 --> 00:15:42,040 Speaker 3: of developments happening in the Asian eighty one space. Chinese banks, 285 00:15:42,080 --> 00:15:44,960 Speaker 3: believe it or not, when I started covering the sector, 286 00:15:44,960 --> 00:15:48,160 Speaker 3: we're the biggest issuers of eighty ones globally because they 287 00:15:48,240 --> 00:15:52,280 Speaker 3: used to have massive, like five six billion dollar issuance, 288 00:15:53,040 --> 00:15:58,080 Speaker 3: and all of that is now getting refinanced domestically, and 289 00:15:58,160 --> 00:16:00,720 Speaker 3: so they're taking out their dollars in i'm donated eighty 290 00:16:00,720 --> 00:16:05,440 Speaker 3: ones as they mature, as they become callable, and replacing 291 00:16:05,480 --> 00:16:09,760 Speaker 3: them on shore at much cheaper prices. So the biggest 292 00:16:09,800 --> 00:16:13,280 Speaker 3: source of eighty ones in Asia are going away, and 293 00:16:13,320 --> 00:16:16,760 Speaker 3: that's causing the challenge for investors because at some point 294 00:16:17,040 --> 00:16:21,640 Speaker 3: these are some big chunks in the Asian creating indices 295 00:16:21,680 --> 00:16:27,240 Speaker 3: and that needs to be replaced. An interesting development is 296 00:16:27,360 --> 00:16:31,440 Speaker 3: Japanese banks are starting to issue dollar denominated eighty ones, 297 00:16:31,800 --> 00:16:36,400 Speaker 3: still early stages, baby steps, something we've been saying they 298 00:16:36,440 --> 00:16:39,440 Speaker 3: should do for a long time, because when you think 299 00:16:39,480 --> 00:16:45,160 Speaker 3: about why they issue and we look at the asset site, well, 300 00:16:45,200 --> 00:16:49,320 Speaker 3: forty percent of the Japanese bank's balance sheet is dollar 301 00:16:49,360 --> 00:16:53,320 Speaker 3: denominated assets, mostly because they have large capital market businesses in. 302 00:16:54,160 --> 00:16:56,240 Speaker 4: The US and globally. 303 00:16:57,160 --> 00:17:00,640 Speaker 3: Also, like a lot of the Japanese banks have corporate 304 00:17:00,720 --> 00:17:04,840 Speaker 3: lending out of New York and sometimes in California, so 305 00:17:06,040 --> 00:17:08,480 Speaker 3: they have all these dollar assets. But when you look 306 00:17:08,520 --> 00:17:14,119 Speaker 3: at their capital stack, it's the tie capital used to 307 00:17:14,119 --> 00:17:17,320 Speaker 3: one hundred percent yen denominated. Well for percent of your 308 00:17:17,359 --> 00:17:21,679 Speaker 3: wrist bated assets are in foreign currency, so there was 309 00:17:21,720 --> 00:17:26,960 Speaker 3: a capital mismatch. And to account for that, what they're 310 00:17:27,000 --> 00:17:30,560 Speaker 3: starting to do is slowly but surely begin to issue 311 00:17:30,640 --> 00:17:34,359 Speaker 3: dollar eighty ones. And I think that's a great development. 312 00:17:35,960 --> 00:17:39,159 Speaker 3: And but what's happening is due to the lack of 313 00:17:39,560 --> 00:17:46,240 Speaker 3: other investible securities, they are rallying like crazy. So it's 314 00:17:46,320 --> 00:17:49,119 Speaker 3: not as attractive as they used to be when they 315 00:17:49,119 --> 00:17:53,120 Speaker 3: first started issuing late last year and earlier this year. 316 00:17:53,560 --> 00:17:56,760 Speaker 3: But yep, looking forward to seeing some of eighty ones. 317 00:17:57,600 --> 00:17:59,680 Speaker 1: It was not longer that we're talking about the death 318 00:17:59,720 --> 00:18:02,439 Speaker 1: of the one market when credit Swiss went down and 319 00:18:02,520 --> 00:18:04,520 Speaker 1: people got wiped out on them, and you know that 320 00:18:04,800 --> 00:18:06,919 Speaker 1: that fear surely hasn't gone away. I mean we've just 321 00:18:07,000 --> 00:18:09,880 Speaker 1: forgotten history, or we just have got just too much 322 00:18:09,920 --> 00:18:11,600 Speaker 1: money and not enough stuff to buy. Now we just 323 00:18:11,680 --> 00:18:12,080 Speaker 1: don't care. 324 00:18:13,119 --> 00:18:18,440 Speaker 3: I think there's practical considerations for investors too, because if 325 00:18:18,480 --> 00:18:20,720 Speaker 3: you stay away from the most yielding part of the 326 00:18:20,720 --> 00:18:25,600 Speaker 3: capital structure when nothing's blowing up, you're going to underperform 327 00:18:25,960 --> 00:18:30,280 Speaker 3: and you may not be around when markets get into trouble. 328 00:18:30,960 --> 00:18:34,320 Speaker 3: Eighty one's, though, are fair weather instruments, if that's the 329 00:18:34,440 --> 00:18:39,000 Speaker 3: term I can use. So they need to be priced appropriately. 330 00:18:39,480 --> 00:18:43,080 Speaker 3: And I think what's happening When the risk free rate 331 00:18:43,720 --> 00:18:46,959 Speaker 3: gets to a very high level, the risk premier starts 332 00:18:47,000 --> 00:18:49,920 Speaker 3: to shrink. And I think that's what we are starting 333 00:18:49,960 --> 00:18:55,000 Speaker 3: to see because when you start to see eight handle. 334 00:18:57,160 --> 00:18:58,119 Speaker 4: Any kind of. 335 00:18:58,119 --> 00:19:01,240 Speaker 3: Instrument like investment grades, it is with the eight handle 336 00:19:01,680 --> 00:19:05,440 Speaker 3: the price starts to others, the spread starts to compress, 337 00:19:05,840 --> 00:19:09,119 Speaker 3: And so I think we are in this space where 338 00:19:09,840 --> 00:19:13,520 Speaker 3: the risk premier is not You know, people aren't getting 339 00:19:13,560 --> 00:19:17,720 Speaker 3: paid really to go down the capital structure, but if 340 00:19:17,760 --> 00:19:21,080 Speaker 3: you don't stay there, you may not be around when 341 00:19:21,960 --> 00:19:23,760 Speaker 3: that chicken, when the chickens come home to rust. 342 00:19:23,800 --> 00:19:26,440 Speaker 1: So is there also some value over in the Asian 343 00:19:26,480 --> 00:19:29,800 Speaker 1: market on a similar basis as in the US, where 344 00:19:29,880 --> 00:19:31,680 Speaker 1: it's just kind of overlooked that a lot of people 345 00:19:31,760 --> 00:19:34,520 Speaker 1: don't really kind of get that market, so it's kind 346 00:19:34,520 --> 00:19:36,159 Speaker 1: of underinvested or underappreciated. 347 00:19:36,960 --> 00:19:41,639 Speaker 3: Yes, I think there's always that fear, like, oh, I 348 00:19:41,680 --> 00:19:44,479 Speaker 3: don't want to be in eighty ones because credit Swiss 349 00:19:44,480 --> 00:19:49,359 Speaker 3: happened before that, like you look at US, like City 350 00:19:49,400 --> 00:19:52,760 Speaker 3: did the course of exchange. So yes, people who have 351 00:19:52,840 --> 00:19:59,600 Speaker 3: been around sometimes may have some hesitation. Sometimes they don't 352 00:19:59,600 --> 00:20:05,240 Speaker 3: fit in to an IIG mandate because it's either equity 353 00:20:05,960 --> 00:20:09,600 Speaker 3: or because these are perpetual security so they don't have 354 00:20:09,640 --> 00:20:14,440 Speaker 3: a maturity date, things like that. So there are technical 355 00:20:14,480 --> 00:20:16,920 Speaker 3: factors as well as the fear factor that may keep 356 00:20:16,960 --> 00:20:19,320 Speaker 3: people from investing in eighty ones. 357 00:20:19,800 --> 00:20:21,480 Speaker 1: You've been doing this long time, pre can I ask, 358 00:20:21,880 --> 00:20:24,280 Speaker 1: is the risk accurately priced right now? 359 00:20:24,960 --> 00:20:25,520 Speaker 4: Right now? 360 00:20:25,600 --> 00:20:29,879 Speaker 3: In Asia? The dollar eighty one market does not appear 361 00:20:30,000 --> 00:20:33,960 Speaker 3: to fully price the incremental risk when you take at 362 00:20:34,119 --> 00:20:38,480 Speaker 3: when you look at absolute values, yes, right, because a 363 00:20:38,520 --> 00:20:42,880 Speaker 3: lot of this stuff is investment grade and you're still 364 00:20:42,920 --> 00:20:46,479 Speaker 3: getting six and change. But when the risk free rate 365 00:20:46,640 --> 00:20:50,240 Speaker 3: is so high, the incremental spread pickup becomes. 366 00:20:49,920 --> 00:20:53,359 Speaker 4: Not that great. So that's that's where we are at. 367 00:20:54,000 --> 00:20:56,159 Speaker 1: So the other thing I want to ask you about you 368 00:20:56,200 --> 00:20:59,480 Speaker 1: also cover not to the Japanese Agricultural Bank that shocked 369 00:20:59,520 --> 00:21:02,640 Speaker 1: the world bynnouncing billions of dollars in losses on European 370 00:21:02,680 --> 00:21:07,520 Speaker 1: and European sovereign bonds. Just so for those who didn't 371 00:21:07,640 --> 00:21:10,400 Speaker 1: kind of see that and didn't follow it, how much 372 00:21:10,440 --> 00:21:11,640 Speaker 1: did they lose and why. 373 00:21:12,080 --> 00:21:15,440 Speaker 4: They lost almost close to three billion dollars. 374 00:21:15,680 --> 00:21:19,960 Speaker 3: But when you look at the losses, there's a call 375 00:21:20,080 --> 00:21:23,400 Speaker 3: loss and at one time hit to restructure the portfolio. 376 00:21:24,200 --> 00:21:28,959 Speaker 3: If you skip out the one time piece to restructure 377 00:21:29,000 --> 00:21:32,280 Speaker 3: the security portfolio, the bank is still losing more than 378 00:21:32,280 --> 00:21:34,600 Speaker 3: a more than a billion dollars a quarter, almost a 379 00:21:34,800 --> 00:21:38,800 Speaker 3: rate of five billion dollars a year, and that is 380 00:21:38,840 --> 00:21:42,480 Speaker 3: not going away. So I mean, how long can a 381 00:21:42,520 --> 00:21:45,960 Speaker 3: company continue to lose five billion dollars a year and 382 00:21:46,080 --> 00:21:50,399 Speaker 3: keep chugging along? And that's the conundrum that they face. 383 00:21:50,760 --> 00:21:54,960 Speaker 3: So they need to rip that band aid off and 384 00:21:55,640 --> 00:21:58,960 Speaker 3: address the negative carry. 385 00:21:58,680 --> 00:21:59,960 Speaker 4: In Insecuity's portfolio. 386 00:22:01,880 --> 00:22:04,040 Speaker 3: So when I kind of look at it, it's like, yeah, 387 00:22:04,080 --> 00:22:07,800 Speaker 3: you have a big problem and a small problem. Big 388 00:22:07,920 --> 00:22:11,600 Speaker 3: The big problem is the ongoing the negative carry situation 389 00:22:11,760 --> 00:22:15,240 Speaker 3: that they need to to to reverse. The small problem 390 00:22:15,359 --> 00:22:21,280 Speaker 3: is the the underwater mortgage sovereign bonds that they hold. 391 00:22:21,720 --> 00:22:23,720 Speaker 1: The sovereign bonds though, I mean, you know on paper 392 00:22:23,760 --> 00:22:25,520 Speaker 1: they're losing. Why don't just hold hold on to them 393 00:22:25,520 --> 00:22:27,040 Speaker 1: some maturity. Why can't they just do that? 394 00:22:27,840 --> 00:22:33,840 Speaker 3: So the the issue just if they if they hold 395 00:22:33,840 --> 00:22:38,639 Speaker 3: it to mature to immature, is their funding costs. SOUS 396 00:22:38,880 --> 00:22:44,800 Speaker 3: noted they're the by charter, they're meant to serve the agricultural, 397 00:22:44,880 --> 00:22:49,919 Speaker 3: fisheries and forestry sector of Japan. They and they're kind 398 00:22:49,920 --> 00:22:52,439 Speaker 3: of like the holding group for the holding company for 399 00:22:52,440 --> 00:22:57,840 Speaker 3: a bunch of Japanese co ops. So they're funding is 400 00:22:58,040 --> 00:22:59,040 Speaker 3: yen denominated. 401 00:22:59,840 --> 00:23:00,760 Speaker 4: And and because of. 402 00:23:00,800 --> 00:23:05,680 Speaker 3: The lack of opportunity in Japan, because of the negative 403 00:23:05,760 --> 00:23:08,639 Speaker 3: rates or zero interest rate situation, and they need to 404 00:23:08,680 --> 00:23:13,200 Speaker 3: keep lights on and pay people and return managed to shareholders, 405 00:23:13,480 --> 00:23:18,639 Speaker 3: they went overseas looking for higher yields. So they developed 406 00:23:19,760 --> 00:23:26,160 Speaker 3: a massive foreign currency investment portfolio. And then the question 407 00:23:26,280 --> 00:23:29,600 Speaker 3: is how do you fund your foreign currency securities portfolio 408 00:23:29,680 --> 00:23:32,960 Speaker 3: one hundred percent if you're funding is yen. So they 409 00:23:33,000 --> 00:23:36,720 Speaker 3: went to the institutional market and they put a lot 410 00:23:36,760 --> 00:23:40,280 Speaker 3: of FX ops and forwards and also did some report 411 00:23:40,280 --> 00:23:44,920 Speaker 3: based borrowings. And if you borrow on repot, you're going 412 00:23:44,960 --> 00:23:46,440 Speaker 3: to be priced on the front end of the curve. 413 00:23:46,640 --> 00:23:52,160 Speaker 3: So it's so for plus something and Sofa is five 414 00:23:52,160 --> 00:23:58,160 Speaker 3: point three yard percent right now, So that's one issue. 415 00:23:58,480 --> 00:24:01,479 Speaker 3: And then when you do an FX swap er a forward, 416 00:24:02,000 --> 00:24:08,119 Speaker 3: you're paying Sofa and sorry, you're getting your paying Sofa 417 00:24:08,520 --> 00:24:12,560 Speaker 3: getting paid the Japanese tone, which was minus point twenty five. 418 00:24:13,280 --> 00:24:14,560 Speaker 4: So for an FX. 419 00:24:14,359 --> 00:24:17,760 Speaker 3: Swap, the currency swap costs was about five and a 420 00:24:17,800 --> 00:24:22,560 Speaker 3: half percent, And so they're funding themselves at five and 421 00:24:22,600 --> 00:24:27,120 Speaker 3: a half percent and invested and took that money and 422 00:24:27,160 --> 00:24:33,119 Speaker 3: locked in long term pressureies and Europeans HAVEEIGN bonds at 423 00:24:33,280 --> 00:24:35,240 Speaker 3: two three, three and a half percent. 424 00:24:35,880 --> 00:24:39,320 Speaker 1: It sounds like there's there's still more of that, still 425 00:24:39,320 --> 00:24:41,359 Speaker 1: more of that to unwind though, So they're still in 426 00:24:41,359 --> 00:24:45,240 Speaker 1: trouble as an institution. Are they kind of in a 427 00:24:45,320 --> 00:24:47,760 Speaker 1: downward spiral now? Or can they turn this thing around? 428 00:24:48,440 --> 00:24:52,000 Speaker 3: So like say, even if they sold some of their 429 00:24:52,080 --> 00:24:57,000 Speaker 3: low yielding treasuries or European suborn bonds, what are they 430 00:24:57,040 --> 00:25:01,560 Speaker 3: going to buy that exceeds their stuff? Capital a cost 431 00:25:01,560 --> 00:25:04,840 Speaker 3: of funding in a capital efficient way because you are 432 00:25:04,880 --> 00:25:07,320 Speaker 3: a bank, so you're subject to bank capital rules, which 433 00:25:07,359 --> 00:25:13,639 Speaker 3: means you can go and buy corporates or high corporates 434 00:25:13,960 --> 00:25:16,920 Speaker 3: because that'll or because that'll have a high capital charge. 435 00:25:17,400 --> 00:25:20,720 Speaker 3: So it has to be a capital efficient instrument that 436 00:25:20,800 --> 00:25:24,120 Speaker 3: they need to buy, and and that's and they already 437 00:25:24,560 --> 00:25:27,280 Speaker 3: they have the CLO veil and they have a massive 438 00:25:27,320 --> 00:25:31,080 Speaker 3: COLO book, so a lot of the capital capital capacity 439 00:25:31,119 --> 00:25:34,640 Speaker 3: is tied up with that. So it's it's a challenge 440 00:25:34,640 --> 00:25:38,600 Speaker 3: for them. What can they buy. There aren't that many 441 00:25:38,640 --> 00:25:43,000 Speaker 3: great options other than maybe sell these the stuff to 442 00:25:43,160 --> 00:25:48,760 Speaker 3: handle rates and maybe buy something at four percent and 443 00:25:49,600 --> 00:25:52,160 Speaker 3: you still have some negative carry for some. 444 00:25:54,119 --> 00:25:56,360 Speaker 4: Or you just run that off and. 445 00:25:56,520 --> 00:26:01,440 Speaker 3: Wait it out right, so you take unwind your low 446 00:26:01,520 --> 00:26:07,119 Speaker 3: yielding securities and wait until the FED cuts and maybe 447 00:26:07,119 --> 00:26:13,280 Speaker 3: then there's greater opportunity. But to add to that, it's 448 00:26:13,320 --> 00:26:17,199 Speaker 3: not easy to unwind because the ability to unwind is 449 00:26:17,240 --> 00:26:21,439 Speaker 3: based on how you're locked in with your liabilities. So 450 00:26:21,520 --> 00:26:24,879 Speaker 3: if you have a three year currency swap, you can't 451 00:26:25,160 --> 00:26:28,240 Speaker 3: unwind the underlying asset because then you're taking on currency risk. 452 00:26:28,840 --> 00:26:31,040 Speaker 3: So they have to do a little song and dance 453 00:26:31,160 --> 00:26:35,320 Speaker 3: that matches their liabilities. So yeah, this thing can can 454 00:26:35,560 --> 00:26:36,320 Speaker 3: last a bit while. 455 00:26:36,880 --> 00:26:39,240 Speaker 1: And you mentioned the collateralized loan obligations in the US 456 00:26:39,280 --> 00:26:42,400 Speaker 1: clos they have a big exposure there. Do they continue 457 00:26:42,440 --> 00:26:44,280 Speaker 1: to buy those? Do they have to offload those? What's 458 00:26:44,320 --> 00:26:45,199 Speaker 1: what's going to go on with that? 459 00:26:46,119 --> 00:26:49,280 Speaker 3: I don't think they can offload and I don't think 460 00:26:49,280 --> 00:26:54,840 Speaker 3: they want to offload either, because if they offload, that's 461 00:26:54,880 --> 00:26:58,480 Speaker 3: the highest yielding assets they have, so you don't want 462 00:26:58,480 --> 00:27:01,600 Speaker 3: to and that's the one that's keeping them going in 463 00:27:01,680 --> 00:27:06,119 Speaker 3: terms of net interests well, reducing their negative netwinterest margin, 464 00:27:06,560 --> 00:27:09,320 Speaker 3: So they don't want to offload that. And also they're 465 00:27:09,359 --> 00:27:12,600 Speaker 3: the biggest player in the COLO space, so if they 466 00:27:12,640 --> 00:27:15,960 Speaker 3: really start to unwind clos, no, they cannot. 467 00:27:16,000 --> 00:27:17,040 Speaker 4: They are the market. 468 00:27:17,440 --> 00:27:19,160 Speaker 1: So it just seems a bit. It seems a little 469 00:27:19,160 --> 00:27:21,399 Speaker 1: bit precarious to me, and it seems amazing that, you know, 470 00:27:21,440 --> 00:27:24,919 Speaker 1: they got it so wrong, but also surely others are 471 00:27:24,920 --> 00:27:26,320 Speaker 1: in the same situation, right. 472 00:27:26,720 --> 00:27:29,160 Speaker 3: So the other bank that could be in a very 473 00:27:29,160 --> 00:27:33,359 Speaker 3: similar situation is the Japan Post Bank, because the postal 474 00:27:33,400 --> 00:27:35,840 Speaker 3: service is also a big bank there. 475 00:27:36,800 --> 00:27:39,040 Speaker 4: Fortunately, they did not go and buy. 476 00:27:41,200 --> 00:27:45,280 Speaker 3: What is it three two hundred and seventy billion dollars 477 00:27:45,320 --> 00:27:47,440 Speaker 3: worth of foreign securities. 478 00:27:48,680 --> 00:27:50,320 Speaker 4: So they dodged that bullet. 479 00:27:51,520 --> 00:27:55,040 Speaker 3: But it's the regional banks that are under people's radar 480 00:27:55,280 --> 00:28:01,240 Speaker 3: that you worry about. Do they have exposure? Like there's 481 00:28:01,280 --> 00:28:07,040 Speaker 3: another bank called hours or that got into trouble with USCRE. Again, 482 00:28:07,119 --> 00:28:11,040 Speaker 3: it's a mid sized Japanese bank that had seven percent 483 00:28:11,080 --> 00:28:15,240 Speaker 3: of its loans in US office lending and they blew 484 00:28:15,320 --> 00:28:20,720 Speaker 3: up and had to be recapitalized by the DIVA. So yeah, 485 00:28:21,040 --> 00:28:23,760 Speaker 3: that's that's our is Like who else is out there? 486 00:28:23,840 --> 00:28:26,960 Speaker 3: And when will the chickens come home to roost? And 487 00:28:27,760 --> 00:28:32,160 Speaker 3: the similar. So we think another reason why BOG might 488 00:28:32,200 --> 00:28:35,320 Speaker 3: not be able to raise as fast as it means 489 00:28:35,680 --> 00:28:39,520 Speaker 3: want to on some people think is because the implications 490 00:28:39,880 --> 00:28:42,800 Speaker 3: of the JGB holdings of the bank's balance sheets. 491 00:28:43,400 --> 00:28:44,480 Speaker 4: The Japanese banks. 492 00:28:44,280 --> 00:28:51,560 Speaker 3: Are beholders because of regulatory requirements, and so you can't 493 00:28:52,080 --> 00:28:56,440 Speaker 3: the Bank of Japan cannot go raising policy rates and 494 00:28:56,680 --> 00:28:59,920 Speaker 3: let the ten year JGB and the five year JGB 495 00:29:00,160 --> 00:29:01,400 Speaker 3: rate go hid too much. 496 00:29:02,120 --> 00:29:06,280 Speaker 1: Just staggering story, and we continue to enjoy your coverage 497 00:29:06,320 --> 00:29:09,360 Speaker 1: on it. Pre also would would point out, so listeners 498 00:29:09,400 --> 00:29:12,880 Speaker 1: in in the US and Europe. You know, the interconnectedness 499 00:29:12,880 --> 00:29:15,200 Speaker 1: of this story. You know important is you know some 500 00:29:15,240 --> 00:29:17,640 Speaker 1: people when you talk to them in other regions, they say, well, 501 00:29:18,000 --> 00:29:19,640 Speaker 1: I don't really look at Asia, but I think you've 502 00:29:19,640 --> 00:29:21,120 Speaker 1: got to look at Asia in this case, right. 503 00:29:22,640 --> 00:29:28,640 Speaker 3: Yes, for two reasons. One, they are massive borrowers in 504 00:29:28,680 --> 00:29:36,480 Speaker 3: the REPO space, and so I've been having several conversations 505 00:29:36,520 --> 00:29:40,280 Speaker 3: with people that I used to talk before, and you 506 00:29:40,320 --> 00:29:44,480 Speaker 3: can sense from some of these conversations is because they 507 00:29:44,480 --> 00:29:46,440 Speaker 3: have quanter party exposure to note you. 508 00:29:46,840 --> 00:29:47,440 Speaker 4: That's one. 509 00:29:47,680 --> 00:29:50,440 Speaker 3: And then second, when you have a two hundred and 510 00:29:50,440 --> 00:29:55,720 Speaker 3: seventy billion dollar secure well actually three hundred and seventy 511 00:29:55,760 --> 00:30:00,520 Speaker 3: billion dollar portfolio, seventy five percent of that is fine 512 00:30:00,520 --> 00:30:03,880 Speaker 3: currency denominated, so to almost two hundred and seventy billion 513 00:30:03,960 --> 00:30:10,480 Speaker 3: dollars in dollar euro instilling securities mostly government that can 514 00:30:10,560 --> 00:30:13,600 Speaker 3: have an impact that can move market. So again it 515 00:30:13,680 --> 00:30:17,760 Speaker 3: depends on what they do, but yeah, something to watch and. 516 00:30:17,720 --> 00:30:21,040 Speaker 1: Obviously hugely complex pred Silver breaks it all down on 517 00:30:21,040 --> 00:30:25,080 Speaker 1: the Blueberg terminals. They do check out that excellent courage. 518 00:30:25,120 --> 00:30:26,960 Speaker 1: I'm just going to wrap things up both of you. 519 00:30:27,040 --> 00:30:29,200 Speaker 1: I want to ask you the question of risk because 520 00:30:29,920 --> 00:30:33,400 Speaker 1: it seems you know that I've been I'm using the 521 00:30:33,400 --> 00:30:35,880 Speaker 1: word complacency a lot on this on this show when 522 00:30:35,880 --> 00:30:38,880 Speaker 1: I talked to investors, particularly in the US, because of 523 00:30:38,920 --> 00:30:42,200 Speaker 1: the sort of excess cash that's in the system and 524 00:30:42,200 --> 00:30:44,400 Speaker 1: the lack of supply and the fact that we're all 525 00:30:44,760 --> 00:30:47,760 Speaker 1: rationalizing arguments to buy all sorts of stuff now. But 526 00:30:47,840 --> 00:30:49,760 Speaker 1: it does worry me that there's lots of things out there, 527 00:30:49,800 --> 00:30:55,440 Speaker 1: like geopolitics, cybersecurity, economics, slow down, commercial real estate. Some 528 00:30:55,440 --> 00:30:58,720 Speaker 1: people even worry about private credit getting you know, too big, 529 00:30:58,760 --> 00:31:03,440 Speaker 1: too fast, consumers under a lot of stress. What do 530 00:31:03,520 --> 00:31:06,520 Speaker 1: you worry about both of you when you're you know, 531 00:31:06,680 --> 00:31:10,320 Speaker 1: when you're thinking about your own you know, outlooks on 532 00:31:10,520 --> 00:31:12,640 Speaker 1: on on what you cover. Also when you're talking to clients, 533 00:31:12,640 --> 00:31:15,680 Speaker 1: I mean, what's what's giving people great hair at the moment, 534 00:31:15,720 --> 00:31:17,800 Speaker 1: Mary Ellen, you want you want to kick off for that? 535 00:31:17,800 --> 00:31:20,200 Speaker 1: What's the biggest risks out there? 536 00:31:21,200 --> 00:31:21,520 Speaker 4: Sure? 537 00:31:22,440 --> 00:31:24,600 Speaker 2: I think I think in one of the things that 538 00:31:24,640 --> 00:31:28,080 Speaker 2: I'm watching is just the cap X spend for some 539 00:31:28,200 --> 00:31:31,120 Speaker 2: of the national oil companies that I cover. They haven't 540 00:31:31,120 --> 00:31:34,720 Speaker 2: really started investing to to meet some of their ESG 541 00:31:34,880 --> 00:31:37,360 Speaker 2: kind of goals, like their net zero goals, and I 542 00:31:37,360 --> 00:31:39,200 Speaker 2: think that we could start to see that kind of 543 00:31:39,280 --> 00:31:41,640 Speaker 2: ramp up on their credit profiles in the in the 544 00:31:41,680 --> 00:31:44,520 Speaker 2: coming couple of years, and I think the investments are 545 00:31:44,520 --> 00:31:48,080 Speaker 2: going to be quite large potentially. So that's one area 546 00:31:48,680 --> 00:31:51,000 Speaker 2: on the IG side that I'm probably watching a little 547 00:31:51,000 --> 00:31:53,680 Speaker 2: bit more closely or thinking about more closely. 548 00:31:54,520 --> 00:31:56,480 Speaker 4: And then in the high yield. 549 00:31:56,240 --> 00:31:59,360 Speaker 2: Space, I think for the companies that I'm looking at, 550 00:31:59,560 --> 00:32:02,920 Speaker 2: just monitor during some of the technology developments, for companies 551 00:32:02,960 --> 00:32:07,800 Speaker 2: that are in the new metals like lithium, and and 552 00:32:07,960 --> 00:32:11,760 Speaker 2: also just being aware of regulation and how that can 553 00:32:11,800 --> 00:32:14,040 Speaker 2: impact companies whether or not you know there's going to 554 00:32:14,040 --> 00:32:19,560 Speaker 2: be sanctions for you know, Chinese steel being dumped overseas, 555 00:32:19,840 --> 00:32:21,600 Speaker 2: that sort of thing, and how it can help or 556 00:32:21,640 --> 00:32:22,560 Speaker 2: not help a company. 557 00:32:23,040 --> 00:32:25,800 Speaker 1: Technology think that's an opportunity. Why is it a risk? 558 00:32:27,080 --> 00:32:30,640 Speaker 2: I guess just if you if your processes you know, 559 00:32:30,760 --> 00:32:33,800 Speaker 2: don't match up or they change course and you've invested 560 00:32:33,840 --> 00:32:37,800 Speaker 2: in one one type of manufacturing versus another, it could 561 00:32:37,840 --> 00:32:41,120 Speaker 2: impact you. Or if you're you know, if all of 562 00:32:41,120 --> 00:32:44,040 Speaker 2: your eggs are in one basket in terms of your 563 00:32:44,120 --> 00:32:46,320 Speaker 2: core product, I think that can impact you if the 564 00:32:46,400 --> 00:32:49,400 Speaker 2: price is fall because demand shifts for a certain period 565 00:32:49,480 --> 00:32:52,160 Speaker 2: of time. So just just trying to take a look 566 00:32:52,200 --> 00:32:54,719 Speaker 2: and imagine what could go wrong for some of the companies, 567 00:32:54,800 --> 00:32:57,520 Speaker 2: especially in the high yield space, that maybe are a 568 00:32:57,560 --> 00:33:01,360 Speaker 2: little bit less diversified, either geographic or by product. 569 00:33:01,960 --> 00:33:03,920 Speaker 1: Free anything worrying you at the moment. 570 00:33:04,240 --> 00:33:08,800 Speaker 3: Well, I think with especially in the dollar side, with 571 00:33:08,920 --> 00:33:13,320 Speaker 3: interest rates starting to come down, and especially where I'm 572 00:33:13,320 --> 00:33:16,920 Speaker 3: in Hong Kong, where the Hong Kong dollar is basically 573 00:33:16,920 --> 00:33:21,440 Speaker 3: packed to the US dollar, I think the the concerns 574 00:33:21,520 --> 00:33:26,760 Speaker 3: around credit and credit quality are starting to subside, China 575 00:33:27,280 --> 00:33:31,640 Speaker 3: being a separate cattle of our kettle of fish there. 576 00:33:32,280 --> 00:33:35,880 Speaker 3: In terms of Japan, it's it's always the fear of 577 00:33:36,000 --> 00:33:40,200 Speaker 3: what could happen to certain banks, especially those below the 578 00:33:40,600 --> 00:33:46,120 Speaker 3: Big three four as the Bank of Japan starts to 579 00:33:46,120 --> 00:33:50,200 Speaker 3: to raise rates. And I should probably start by asking 580 00:33:50,360 --> 00:33:53,600 Speaker 3: could the Bank of Japan start to raise race? That's one, 581 00:33:53,880 --> 00:33:58,080 Speaker 3: And then second, I think from an investment perspective, is 582 00:33:58,200 --> 00:34:01,440 Speaker 3: risk priced in, and especially in the environment where credit 583 00:34:01,440 --> 00:34:06,960 Speaker 3: spreads are so tight, and so I think those would 584 00:34:07,040 --> 00:34:08,360 Speaker 3: be front and center. 585 00:34:09,200 --> 00:34:11,920 Speaker 1: Great stuff free to sell with Bloomberg Intelligence and Mary 586 00:34:11,920 --> 00:34:13,839 Speaker 1: Ellen Alson, thank you so much, for joining the show. 587 00:34:14,239 --> 00:34:16,879 Speaker 4: Thanks James, thanks for having us. Thank you, it's been. 588 00:34:16,800 --> 00:34:19,040 Speaker 1: A pleasure having you on the Credit Edge. Check out 589 00:34:19,200 --> 00:34:22,040 Speaker 1: all of Mary Ellen and Pre's excellent analysis on the 590 00:34:22,080 --> 00:34:25,560 Speaker 1: Bloomberg Terminal. Bloomberg Intelligence is part of our research partment, 591 00:34:25,560 --> 00:34:29,040 Speaker 1: with five hundred analysts and strategists working across all markets. 592 00:34:29,400 --> 00:34:32,280 Speaker 1: Coverage includes over two thousand equities and credits and outlooks 593 00:34:32,280 --> 00:34:35,040 Speaker 1: on more than ninety industries and one hundred market indices, 594 00:34:35,080 --> 00:34:38,680 Speaker 1: currencies and commodities. And please do subscribe wherever you get 595 00:34:38,680 --> 00:34:42,240 Speaker 1: your podcasts. We're on Apple, Spotify and other good podcast providers, 596 00:34:42,239 --> 00:34:45,439 Speaker 1: including the Bloomberg Terminal. Give us a review, tell your friends, 597 00:34:45,560 --> 00:34:48,839 Speaker 1: or email me directly at Jcrombie eight at Bloomberg dot net. 598 00:34:49,360 --> 00:34:51,359 Speaker 1: I'm James Cromby. It's been a pleasure having you join 599 00:34:51,440 --> 00:35:10,160 Speaker 1: us again next week on the Credit Edge.