Our Value Add For The Bonds Issuance Process
At Arka Projects, we use the expertise we developed analyzing companies from our equity analysis experience as investment analysts and our credit analysis experience as corporate lending officers to evaluate companies whose bonds we're considering for origination in our search for un-rated bond issuers who will offer institutional investors inherent value. Our value-add will be through:Assessing Client's Management During Due Diligence
One of the most critical steps in our assessment process is to visit a target client. Company and meet the management at their operations site. We ask a lot of questions and listen carefully to the answers.
We examine the track records of key executives and determine whether they are what we expected from reading the company's annual report and other literature. And we see first-hand if they are confident, if they have a vision. The importance of on-site investigation is crucial to our decisions. It's easy to put together a flashy annual report and glossy marketing materials. We will need to know if there's substance behind the flash.Company Analysis
Through our internal resources at Arka Projects, we conduct an in-depth analysis of the company. We look at its profitability and evaluate its assets. We focus on driving forces behind trends in sales, operating expenses, liquidity, working capital management, gearing, profitability and client Company's existing markets and targeted new markets. We build in "stress" tests by changing key variables to see, for e.g., what would happen to the potential credit's cash flow if raw material prices or oil prices rose. Is the business model cost competitive? If a company produces a product at a lower cost relative to its peers in the industry, it will probably survive and prosper in the medium and long term.Industry Analysis
We conduct a SWOT analysis of the industry as no company operates in a vacuum. No matter how solid the management and balance sheet of a company are, its profitability will be affected by the strength of its rivals. We have the requisite expertise through the preparation of numerous strategic business plans for clients in diverse industries from oil palm plantations to biotechnology to car rental owners.
We examine our client's competitors to see what the threat posed and we look for any key developments likely to impact the industry e.g. oil price changes, barriers to entry, technological developments leveling the playing field etc. We plan for the long term and we want to ensure the company we choose can adapt to changing economic scenarios.Relative Value
The last step is to determine the relative value of the un-rated bond, in contrast to an agency-determined rating. We compare the financial statistics of the company to those of its peers to get a true sense of the rating. We structure the terms and conditions of the bond: its covenants, repayment frequencies, credit enhancement measures, corporate structure for offshore borrowing, compliance with domestic and host countries' regulatory requirements, adequacy of the underlying security via assets and cash-flow assignment and redemption features. Finally, we examine the pricing of the bond in relation to alternatives in the same industry, and to bonds in other industries with comparable ratings and credit statistics. Our value add advisory to customers include credit enhancement measures, recommendations on assets and future cash flows along with introducing convertibility options to bring down interest pricing to ensure a win-win situation for both the borrower and investor.
Only after this intensive research is complete do we make a recommendation to our distribution partner. If a potential bond continues to look attractive after our thorough evaluation, we will recommend the issuer. By this point, we are confident that a given bond issuer has an inherent worth that will ride out the ups and downs of changing interest rates. And then we continue to monitor the recommendations we've made to ensure they provide the value we expect of them.