Investing in junks is gambling, $713m is placing big bets

The Asia Times reported last week (8 Mar) that Singapore’s Government Investment Corporation will subscribe to 50 billion rupees ($713 million) worth of Bharti Airtel’s rights issue in exchange for an approximately 5% stake in the latter. The Delhi-based Telecommunications Company is the second largest mobile network operator in India and the third largest in the world with operations. It has operations in 20 countries across South Asia and Africa.
Airtel said that the rights issue was initiated to “further strengthen our balance sheet with desired financial flexibility so as to meet future opportunities, particularly in the rapidly transforming Indian mobile market.””....


Just last week, Moody’s has lowered the credit rating of Bharti to “junk” grade Baa3 as it has concerns over weak cash flows over the next few quarters.
In the same article, Moody’s forsees that this would increase Airtel’s cost of borrowing by 30 to 50 basis points.
As at 31 Dec 2018, Airtel’s net debt stood at more than $15 against a Market Value of around $17.5 billion.
Would you invest in debt-heavy Airtel?

Above is TRE Editorial article.

Over a longer time frame of 25 years, the Indian rupee and Indonesian rupiah have fallen against S$ by 62% and 87% respectively.  Philip Ang

People reading the above would have the impression that this kind of investment in junk status companies is bad. No need to think further. Why would anyone throw good money after bad money? This is the view of the common laymen, taking things superficially.  This investment made good sense, just like buying all the junk American and western banks during the world financial crisis. It is a rare opportunity to be able to buy once good companies at junk prices.

Think long term, in the long run or long term, junk companies would turn from ashes to gold. The rupee too in the long term would turn up as India is the next super power. They claimed they had shot down a Pakistani fighter aircraft, which the Pakistani have proven to be a lie. They also claimed to have shot down a satellite, no one has proven that this is also a lie.  Lie or truth, in the long term everything would be right or alright.

It takes geniuses to invest in junks and hoping to turn them into gold. It requires exceptional talent and foresight. This is better than venture capital investment where they hope to  make one good killing after hundreds of failures. The principle of investing in junks or failed companies is the same.

The advantage of investing in junk stocks over venture capitalists is that one is investing in a failed company that was once successful. The other invested in companies that are just starting from scratch and has yet to see success. Sure one would be lucky after a few hundred misses and the one good junk stock could earn back all the monies lost. So do not worry about the hundreds of millions lost or billions lost in failed investments. In the long run, all the losses would be recouped with a few successes in junk stocks.

This is just my view, please feel free to disagree.