International Personal Finance

Significant price drop in the (model portfolio constituent) 2020 bond today, following an RNS announcement on potential Polish legislation affecting permitted cost of credit.
"Dependent on legal interpretation of the final version, however, there can be no assurance that the legislation, if introduced in its present form, would not have some adverse financial impact on IPF".
The equity is off by nearly a quarter today alone, so there is fear out there that this could be serious. Poland seems to have accounted for over half of IPF's profits last year, so one can understand concern.
The chief exec on a conference call this morning (available at http://www.ipfin.co.uk/investors.aspx) opined that the proposed change to previously agreed arrangements is politically inspired in an election year, a surprise to company, industry and regulator. It is the company's view that whilst unable to go into detail, there will be means of mitigating any financial impact and Poland will continue to be the most profitable by geography. Others in the industry, particularly payday lenders (not IPF) stand to lose more, should the changes go through as currently framed.
So, is a threat or an opportunity?

Comments

  • The proposed law change is not welcome news and if it is a trend that were to be replicated in the other territories it would be a concern but only for the equity investors and the growth of their dividend. I see this as a decent opportunity to take the higher bond yield on offer.

    The "bond of the week" write up on this website talks about how 95% of the loans made are due within 12 months. The company debt profile is longer term so liquidity is fantastic. Net assets in the latest accounts of £300m+ mean that if the whole thing was run down the bond holders would have little cause for concern and are well covered.

    I bought yesterday and will add some more it dips lower.

    Tops
  • Here's a research note from Citi credit analyst - note that he talks about the 5.75% institutional bond, but using his 7.2% and 8% Yield targets, this translates to price of 95.7 and 92.6 for the 6 1/8% LSE ORB bond. Hope this is helpful!


    Citi European High Yield Credit
    IPF – Stock down (25%), bonds down 6pts - Underweight 5.75%Senior Unsecured 21s

    The Polish Parliament revised price capping rules to include all non-interest costs in connection with a consumer loan. This in our view impairs IPF’s Polish business (40% of sales / 50% of earnings) model meaningfully especially if similar populist-driven regulatory changes were to occur in IPF’s other markets (Czech Republic, Slovakia, Hungary, Mexico, Romania, Bulgaria). In and of itself, we see a 0.8x re-leveraging impact resulting from these specific rate caps in Poland which in our view, would imply a fair-value for the bonds in the c.93 cash px or 7.2% YTW context. However, we would argue the possibility of business model changes resulting from similar legislative changes in IPF’s other markets implies that investors need to be compensated in ‘high-single’ digit IRR terms. At 8% YTW for e.g. this would imply a cash price of 90 (10pts of down-side from yesterdays’ closing levels).

    IPF(Underweight) - 5.75% Unsec ’21s (€400m)
    Net Lev - 2.3x
    Rating - BB+
    Price - 94.0
    YTW - 7.0%
    Z-Spread 645

  • Thanks VSI,

    Would anyone have a view on whether we are better protected than the 2021 Euro notes given that they mature after the 6.125% 2020 notes? I take some comfort from the fact that even if the next few years become less profitable for IPF we are at least in front of the euro notes ( the only other material loan, as there are a large number of quite small ones due 2015-2018) in terms of the refinancing timetable.
  • 6.125% have had a good run lately and with the results hitting the equity today thought it was time to offload just above par.

    Too much risk for just over a 6% yield for me.
  • Same here, sold today on the back of the results. The Euro 5.75% 21s are currently @ 88 with yield of 9% nearly so too much of a difference compared to the retail sterling notes at 6%.
    SJD, who do you uses as broker as i got a much worse price?
  • Sold through HL @100.2 and AJBell/Youninvest @ 100.25. Was around 8.30 in the morning.

  • cheers. i sold a bit later. Happy anyway as they are now collapsing at 93
  • Brexit presumably will have changed the outlook for IPF. They may not be able to conduct their business in Eastern Europe as before, and Mexico by all accounts not doing as hoped for.
  • Q3 update out today -

    http://www.lse.co.uk/share-regulatory-news.asp?shareprice=IPF&ArticleCode=i6f6g1sb&ArticleHeadline=Q3_2016_Trading_Update

    Stockmarket seems to like it - shares up over 10% and this bond up to a shade either side of 103.

  • One of those companies that worries me. Needs to be a much higher yield to tempt me back in.
  • Perhaps a good time to reduce one's exposure? part sold today at 102.35, therefore a small capital gain from an initial investment back in April 2013 (at par)
  • Yup - shares down ~40%.
    5.75% 2021 bonds down 12pts+ and now in mid-70s to yield ~13%

    Retail bond - Canacord have it 89-93 (10.0% / 8.6%). Imagine some more way to go in the drop.
  • Anyone any suggestion RE IPF 6.125% NTS 8/5/20 other than hang on..
  • As per my 20 Oct post not not a company I could invest in again at a 6% yield. Took the opportunity to get out just over par in July. Far too risky.
  • This risk which has materialised today has been there a long time. These bonds mature in May 2020 ahead of a 400M eurobond. Even if half the debts went bad and the company decided to stop trading given the impaired profitability it should still be able to repay its borrowings, so my approach in this situation is to continue enjoying the interest and await redemption. No one knows at this point what the final outcome in Poland will be. It is very tough for shareholders who are potentially seeing dividend cuts. All in my opinion only.
  • I completely agree with you Gliderpilot. Their balance sheet is too strong for me to have any concerns about repayment. I will be topping up my holding at this price.
  • Well we've been here before, hopefully the size of the fall is just a knee jerk reaction, not a time to sell. Batten down the hatches untill May 2020. Could be a good opportunity to purchase a few
  • Laughton, many thanks for the update. (& fellow contributors)
    Purchased a few this morning at 89.60.
    As Colin indicated, a good opportunity to purchase a few
    It was fortunate I sold a few back on 24th Oct, when there was better news!
    Shows the importance of periodic reviews, in particular to sell when the news is generally good!
  • Well done Shaun ,i think you found the bottom today. Slight improvement today up to a smidgeon to just under 92. Agree with your comments fully
  • Colin, hope I'm right!

    Mark Glowrey's book "The Sterling Bonds and Fixed Income Handbook" is well worth reading. Types of trade (page175), No 1 = Overreaction to bad news
    LSE annoncement
    "This morning, the Polish Ministry of Justice published a draft bill on its website ...."
    Firstly - It's a draft
    Secondly - Unusual for the legal side of the Country to over step it's jurisdiction, when typical it's the Treasury Department who promotes this type of legislation.
    Thirdly - Any proposals could move business from "payday operators" to more reputable businesses like IPF, thus possible for proposals to benefit IPF - Who knows!
    Fourthly - Recent October results were good

    Not the most loved security in the investors world, eg the past "tap issue", type of business etc, however there are opportunities for any stock, perhaps even more this security.

    As time gets closer to maturity, May 2020, now only 3 years & 5 months away, I suspect the price will over the next 12 months exceed par, providing their future actual financial performance is reasonable.

    An amateur investor's view only
  • IPF to appeal decision of Polish Tax Chamber

    International Personal Finance's home credit company in Poland, Provident Polska, is to appeal a decision received from the Polish Tax Chamber (the upper tier of the Polish tax authority) on 5 January 2017 with respect to its 2008 financial year. The decision involves a transfer pricing challenge relating to an intra-group arrangement with a UK entity together with a challenge to the timing of taxation of home collection fee revenues.

    We strongly disagree with the interpretation of the tax authority having received legal opinions from leading advisors as to the strength of our case. In addition, during a previous tax audit by the same tax authority, both items were challenged and the company's treatment of them was accepted as correct. Provident Polska's treatment of these items has not changed since then.

    We will appeal the decision to the District Administrative Court and pay the amounts assessed (c. £20M comprising tax and associated interest) which is necessary in order to make the appeal. The payment of this sum is not a reflection of our view on the merits of the case and accordingly it will be recognised as a non-current financial asset in our group accounts. As we believe our case to be very strong, no provision will be recognised against this asset and there will be no charge to the income statement as a result of this decision. We also intend to initiate a process with the UK tax authority aimed at ensuring that the intra-group transaction is not subject to double taxation but is taxed in accordance with international tax principles.

    We expect to receive the same decision shortly from the Polish Tax Chamber in respect of the 2009 financial year which would give rise to a substantially similar liability to that for 2008. 2010 remains under audit and all subsequent years remain open to future audit.

    International Personal Finance and Provident Polska do not adopt aggressive tax strategies as evidenced by Provident Polska's average effective tax rate since 2008 which exceeds the Polish corporate income tax rate of 19%.
  • As I have changed my previously positive view on IPF following last Fridays announcement I feel I should say so. It seems unsatisfactory that the tax for 2008 is still an open issue. The Times on Saturday reported the worse case scenario as £134M for the past open years. The market price reaction in the bonds has been small and as the downside risk is so large I have chosen to sell. The risks seem excessive for the return on offer and I am wondering what the Polish authorities might do next. It is very difficult indeed to judge investment decisions in such circumstances. This is just an opinion and reflects my own circumstances and I don't want to influence more risk tolerant investors.
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