Swiss obligations

https://obligation.enespa.ch/

I found this in a web ad, so might be total spam as I don’t have time to do my due diligence currently.
4.5% pa for 4 years
5.5% pa for 7 years
in CHF

Doesn’t seem to be a bad deal.
And they are active in plastic recycling, so you’re doing Earth a favor as well (hopefully).
What’s the catch (apart from a company that might go bankrupt)?

Do you know about any similar offers?

That’s the catch, if it’s 6% than the risk free rate there’s a non 0 default risk. At least if you’re going towards bonds with risk seems like at a minimum should have enough diversification to lower that risk.

But then how correlated is corporate bond with equity? If it’s correlated why add that extra complexity vs just investing in equity?

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the hedge is that bondholders get paid back before shareholders do, in case of bankruptcy.

I’d be reluctant to dive in to a recycling startup with equity, but bond coupons will need to be paid unless the company goes default.

CH state obligation 7 years: -0.5%/year
Enespa corp. obligation 7 years: -5.5%/year

So without compounding a difference of 42% in 7 years. Without doing the exact math: I guess you have a chance of ~50% to never see your money again.

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Yes, it has a senior claim but if it’s correlated doesn’t matter much, what would be the difference vs a diversified equity+bond mix that has equivalent risk?

do you have a diversified bond product that pays close to 5% pa?

I’d like to keep my equity investments separate.

That’s my point, a 5% bond is going to be low quality corporate bonds, at this point there won’t be much difference with equity given the correlations, so just tilt your portfolio towards small cap?

And also has a similar risk profile/volatility.
Usually you want bonds for the con-correlation and as a non volatile/low risk asset, so not much point to go for “high”-risk bonds

How does the Balance Sheet look like? Are there a lot of tangible assets? What are the company’s other liabilities? Any other more senior debt on the balance sheet? Any legal contingency? Which part of the operating expenses will be paid before paying back debt? (In the current world, a company will pay its software licenses/subscription before paying any financial stakeholder, else it cannot operate).
What is the reimbursement schedule? Are there several bonds to pay back at the same time?

How does the income statement look like? The cash flows? By how much is the interest covered by cash flows before tax and interest? By how much would the revenues need to go down before the company cannot pay its interest? How likely is it? For instance, what kind of customers does the company have? Would they be able to pay the company in case of, let’s say, a global pandemic?

What about the reimbursement of the principal? Are the cash flows enough, or will the company have to refinance the bond to cover the principal? If they need to refinance, what happens if there is a credit crunch and they cannot get additional credit? Are the liquidation value of the tangible assets on the balance sheet enough to pay your money back?

Once you’re able to answer all those questions, you will be able to know if 5.5% is a correct compensation for your investment.

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Are you sure you picked the right profession Julian? :wink:
I bet you know more about this than 80% of the people doing that job for a living. Just saying.

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Doesn’t Julianek and/or his employer (at least kind of) do this stuff for a living though, IIRC? :thinking:

I’m quite sure he knows more about anything than 80% of the people doing it for a living.

(sure, some of the more exotic subjects, even he’ll briefly read up on them over a weekend or so)

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Another MBA/Finance graduate :stuck_out_tongue:
Noone is able to answer all those questions (maybe about half yes, a quarter on guesstimates and a quarter is totally out of thin air), and you know it exactly, but that’s the magic of company valuation/sensitivity analysis.

I am aware about these parameters, these are all part of a due diligence check (and thanks for flagging operating expenses coming senior to interests, it seems fair but I wasn’t keeping that in mind). In the opening I mentioned I did not have the time to go through these (most of which is probably a big fat unknown until you get to the books which are probably NDA material) - so what I was more interested in, not dipping my toes into any corporate bonds yet, if these numbers generally stink to the wider gremium or not. It seems they do.

Thanks for the kind words, but unfortunately you might be underestimating competition. Anybody who had read Reading financial statements for dummies or, more advanced, Security Analysis could have come up with these questions.

Although I do work in a financial institution, my work is very remote to these topics. I am a software developer and graduated in Electrical Engineering. My employer is an issuer of structured products, so for my company all that matters is time series/volatilities/correlations/etc (*). Except in the accounting department, I would have a hard time finding someone able to read financial statements in my firm, let alone to investigate the investment-worthiness of a security.

It is just that I have the stubborn attachment to consider a stock a shared ownership of a business (or a bond a financial claim against this business), and as such I am very curious and I really like to know how it works under the hood.

(*) It seems like European institutions are more eager to rely on times series/correlations and other complicated math formulas to tackle investments problems, while the anglo-saxon world uses a more bussiness centric/bottom up approach.

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I should have explained it a little bit more. Yes, a financial analyst will most probably ask those questions (and many more). I was referring more to the average bank employee, who’s in theory should also be knowledgable, but usually doesn’t have a clue.

I don’t agree with your 2nd sentence though - it’s not only about reading those books, but also understanding and using them. And that’s where you, from my humble point of view, really have a talent!
I mean 700 pages for Security Analysis from Benjamin Graham. I have read “The intelligent investor”, and I really didn’t enjoy it. Plus, I would not be able to ask the same questions you did. PS: this is coming from someone who’s good with numbers and also has a minor in economics.

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