BENJAMIN MARK COLE
Some investors in Los Angeles, at least those with strong stomachs, are considering buying bonds of South Korea and Indonesia.
“We are looking at Indonesian and South Korean corporates,” said Charles Yamarone, executive vice president at Libra Investments in Brentwood, a shop known for its edgy investing.
Yamarone wouldn’t detail exactly what he or his clients are buying, but he noted that some blue-chip bonds of South Korean giants such as conglomerate Samsung Ltd Co. and ferrous metal titan Pohang Iron and Steel Co. Ltd., are offering double-digit yields.
Pohang Iron is widely regarded as the lowest-cost producer of steel in the world, bar none, and until the recent troubles, its bonds offered a yield of only 1 percent more than that of U.S. Treasury bonds.
Now the spread between Pohang bonds and Treasury notes is up to 7 percentage points, obviously offering the chance for big-time capital appreciation, if the problems of South Korea are worked out to the satisfaction of world capital markets, and the spread comes back to its norm of 1 percentage point.
Over at The Post Advisory, a junk bond manager in West Los Angeles, founder and President Larry Post is looking at certain Indonesian bonds, including those of Asia Pulp & Paper Co., whose stock is traded on the New York Stock Exchange under the symbol PAP.
“Right now, there seems to be a disconnect between the bond and the stock,” said Post.
Sure enough, the stock as of last week was off nearly 45 percent from its 52-week high of mid-1997, while certain Asia Pulp & Paper bonds are trading at discounts of only 30 percent to 35 percent below face value.
But even at the $9-a-share stock price as of last week, Asia Pulp & Paper has a market capitalization in the neighborhood of $1.9 billion.
That means Wall Street thinks the paper-maker is worth that much, over and above its substantial debt not exactly an indication that the company is a high risk for defaulting on its bonds, Post points out.
Yet the current yield to maturity on Asia Pulp & Paper’s “floating rate” bonds due in 2001 is 17 percent an eye-popping yield for American investors, who are looking at U.S. Treasuries offering less than 6 percent, and a stock market that has waffled sideways since August.
Asia Pulp & Paper exports the bulk of its product into Asia, said Post, and so it will be valuable to Indonesia in the future whatever shape a reformed Indonesia economy, or even a reformed Indonesian government, takes.
Short traders
Michael Sitrick’s Century City-based public relations firm Sitrick & Co. is best known for crisis communications and for working with firms that have declared Chapter 11 bankruptcy.
But Sitrick lately has been branching into a new growth area. “We are representing more and more companies who are in a war with shorts,” said Sitrick, referring to short traders. “We represented probably a dozen in the last year.”
Short traders are speculators who bet that the price of stock will go down, not up. A war with short traders is actually a scenario made to order for financial public relations professionals because the battleground is often the media, not the courts.
Shorts are known for their whispering campaigns. Moreover, a number of major business publications, including Barron’s and Forbes, have good ties to the short-trading community in New York.
Shorts often know what they are talking about, conceded Sitrick. But many companies tend to “hunker down” when they are under short attack and stop communicating with the press, figuring that the media are against them.
“That’s exactly the wrong strategy. Our strategy is to be very proactive in getting out, and getting the counter-story out there,” said Sitrick
The growth of short work probably stems from the high stock market stocks still are trading at precarious multiples and the large number of high-tech stocks out there, which are especially vulnerable to bad quarters as products are developed.
Sitrick said his “regular” work of bankruptcy and crisis management is doing fine, despite the healthy economy. “I would hire 10 people if I could find them” he said.
Treasure hunt
It’s a story we’ve told before, but it bears repeating. Venture capital does not seem to be finding its way to Los Angeles.
Dick Hahn is president of Enterprise Connections LLC, a Rolling Hills Estates firm that seeks out venture funding on behalf of local growth companies.
Hahn has been trying to raise capital for various high-tech companies, but is finding that real money is on Sand Hill Road the road in the Silicon Valley where all the big venture capital boys have their shops.
“They don’t want to come down here from Menlo Park,” said Hahn. And with some exceptions, local venture funds are not Internet-savvy, said Hahn.
In particular, Hahn is trying to raise funds for a Hermosa Beach-based outfit named Aestiva, founded by David Silverberg.
Aestiva develops and sells software which enables small businesses to create interactive Web sites, with an eye on retailing. The business of making Web sites is almost old hat, but interactive sites are apparently trickier. Aestiva has a product to help solve that, said Hahn.
Too, Hahn is working with Adventures Online Gaming, which is connected to USC’s EC2 incubator project. AOG, founded by John Greensage, offers online gaming products, and a product that allows retailers with 100 or more outlets to inform potential customers via the Internet of the retail outlet located nearest to them.
“There are a lot of great companies and talented people in Los Angeles,” said Hahn, who noted that AOG employs a lot of Cal Tech alums and former JPL workers. “But the funding doesn’t seem to be here.”
Contributing reporter Benjamin Mark Cole writes about the investment community for the Los Angeles Business Journal.
