Equity Analysis /

What are the big shorts as Covid-19 bites?

  • Wilmar is exposed to the unwinding of the carry trade. SELL 31% downside

  • CPALL TB, Thailand’s convenience store operator, has just taken on US$3 billion at a time of operational weaness

  • MINT TB is heavily in debt and intensely exposed to the world hotel meltdown

Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

Tellimer Research
20 March 2020
Published byTellimer Research

Many governments have imposed travel bans in the past few days in an attempt to contain the virus. There is another restriction that hedge fund managers are worried about, as some stock market regulators have curbed short-selling to arrest the market collapse. 

South Korea has banned short-selling for six months. In Asean, there are only two markets where short-selling is still unfettered – Singapore and Thailand.

Hedge funds are likely to congregate their short positions in these markets. There are three categories that are especially vulnerable:

1. Companies whose operations have been obliterated by the crisis. These included tourism, consumer and airline stocks. SIA SP is down 48% from its 2-peak, while THBEV SP has lost 43% of its value. A spike in the incidence of the Covid-19 virus in the region would further weaken these counters.

2. Companies with hidden leverage. This is an issue irrespective of the virus. NMC LN, a health operator, was suspended from trading at the end of February and it was discovered that its auditors had failed to account for US$2.7 billion of debt. NMC’s sister company Finablr has also dropped sharply.

3. Companies that have imminent repayments.



We reiterate our Sell recommendation on Wilmar with a target price of $2.00 (31% potential downside). Wilmar has endemic vulnerabilities and the coronavirus can negatively impact on the company in three ways:

  1. The virus will seriously damage the demand for animal feed in China in FY20. This would erode Wilmar’s soybean processing margins. 
  2. The virus could weaken the yuan and expose Wilmar’s reliance on the carry trade. Table 1 shows that Wilmar has suppressed its net interest expense to 2.5% through the use of the carry trade. It carries US$18 billion of net debt, making it the most indebted company on SGX. Our interest coverage ratio estimate assumes a narrowing of CFO and widening of the interest expense ratio in FY20.
  3. The fallout from the virus will cast a dark shadow on Wilmar’s listing of its Chinese business. 
Table 1: Wilmar: Earnings exposure to interest cost volatility (base case)


Base case scenario




Interest yield (%)




Interest cost (%)




Spread (%)








Interest income (US$mn)




Interest expense (US$mn)




Net income (US$mn)




Source: Tellimer Research



CPALL TB (Not Rated) is the 7-Eleven operator in Thailand. It is part of the CP Group. Its net debt has expanded due to the addition of about 600 new stores per year for the past five years. More alarmingly, it has increased its net gearing to support the aspirations of its parent - CP Group. The CP Group has acquired Tesco for US$10 billion, of which US$ 3billion will come from CPALL TB.

There is likely to be intense operating weakness from Covid-19. Management has already revealed that same-store sales growth (SSSG) was flat in January and negative in February. This is an alarming reversal for a company that commands a premium on the strength of its growth trajectory.

It suggests that the interest coverage ratio could deteriorate. There is also a risk that CPALL TB may violate its debt covenants. Our FY20 interest coverage ratio estimate assumes a 50% drop in CFO.


Minor International PCL – MINT TB (Not Rated) – is one of the largest hospitality operators in Asia. It owns 35 hotels and operates a further 68 hotels and serviced suites. It has more than 12,800 rooms – under major brand’s such as Four Seasons, St. Regis, Marriott, and Oaks. It has a presence in Australia, Indonesia, the Maldives, the Middle East, New Zealand, South Africa, Sri Lanka, Thailand and Vietnam. 

MINT TB’s predicament is that it has doubled its net gearing at precisely the wrong moment. 

In December 2018, MINT TB acquired the European hotel operator NH Hotels Group. The deal was financed by debt, but after the acquisition the assets have been revalued. This has understated the net gearing. 

MINT TB is suffering from the worldwide collapse in hotel visitors. Anecdotal evidence suggests that its flagship Peninsular Hotel in Bangkok is operating at 5% occupancy. The European and Asian assets are in similar dire straits. Our FY20 interest coverage ratio estimate assumes a 70% drop in CFO.