The Weekly Report: Spotlight on NGCTT – Familiar Name, Undervalued Bond

1 May 2012


Rated one rung higher on the bond totem pole than the Kingdom of Spain by Standard & Poors, the bond for the National Gas Company of Trinidad & Tobago (NGCTT) is priced below par and is comparatively liquid when compared to other Caribbean corporates.

NGCTT enjoys being one of the few efficiently run and profitable state enterprises in T&T and I dare say throughout the Caribbean. If you haven’t yet thought of it as a likely candidate for your portfolio, here are a few reasons to give it a first (or second) look.

Bond Snapshot

Issuer The National Gas Company of Trinidad & Tobago
Currency USD
Coupon 6.05%
Frequency Semi-annual coupon
Maturity January 15th 2036
Amount Issued USD 400mm
S&P Rating A-

Despite the maturity date in 2036 and the inherent interest rate risk on this long-tenor bond, NGCTT 2036 has good upside potential.

The prognosis is that rates will stay low as a consequence of struggling global economies, in particular within Europe. As investment options remain limited and with excess liquidity found aplenty, a 6.05% coupon and a yield to maturity of 6.13% (with an indicative price of 99.00) is nothing to sneeze at. If you’re not interested in holding to maturity, consider a shorter term play of 1 year where you collect your coupon and sell at a potential 2 to 3 points higher than purchase. Sounds a lot better than the 1.00% or less being ‘earned’ on bank deposits.

Bond Performance

The above graph shows fairly stable performance over the last year. In January we traded these in the high 96.00 handle and with prices set to go past 99.00 as we enter May, you can see that prices are on the up.

Let’s look at some hypothetical short-play the numbers to give you a clearer indication:

Face Value:            USD 1,000,000

Purchase Price:      100.00

Market Value:         USD 1,000,000

Sale Price:             102.00

Coupon:                6.05%

Total Effective Return on Investment: 8.05%

As mentioned above, this is purely theoretical, but still quite realistic given the bond’s trading history.

In the Pipeline for NGC

Of particular note would be the Eastern Caribbean Gas Pipeline.

Some details as of March 13th:

The Trinidad and Tobago and Barbados governments have reaffirmed their commitment to the Eastern Caribbean Gas Pipeline Company (ECGPC) project. The 300-kilometre long pipeline will run from the Cove Point Estate, Tobago to Barbados, and will supply 30 million standard cubic feet of natural gas per day to the primary customer, Barbados Light and Power Company.

Shareholders of the ECGPC, which will be constructing the pipeline, are US-based Beowulf Energy LLC and First Reserve Energy Infrastructure Fund—who collectively own a 60 per cent stake; Guardian Holdings Limited, with 15 per cent; the Unit Trust Corporation of Trinidad and Tobago (15 per cent); and the state-owned National Gas Company (10 per cent).

All in all, you know the name, the management and the history. Why not look at the potential value in their debt issue? Give me a call at 622-1346 or email me at gerard.stephens@nullfirstlinesecurities.com to find out exactly how.

Gerard Stephens
Account Executive
Sales & Trading

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