Hyflux

Now that I think about it, there is no need to do anything immediate about the perpetuals because Hyflux doesn’t have to put up any cash for redemptions or even coupons (as Long as no dividends are paid to common equity). Am I missing something here?

Tuaspring (TS) owned by Temasek e.g. Keppel/Sembcorp/ST Marine = No Security Threat
TS owned by Hyflux, which is 30% owned by Olivia Lum                  = No Security Threat (since PUB granted Hyflux TS in the first place)
TS, 70% owned by foreign name e.g. YTL and 30% by Hyflux          = Security Threat (since YTL reportedly was interested but not allowed to look @ numbers)
 
so is TS, owned by Hyflux which is 60% owned by Indonesia name i.e SM a security threat?

In the first place, why is the holder of the concession rts to TS a security threat? The physical infra of TS belongs to the state. The concessionary rts holder merely has the rt to all economic interests in the asset. Under the water purchase agreement, PUB is obligated to buy, and TS is obligated to produce water satisfying conditions. If TS is to sabotage the supply, then there will be a financial penalty.

So if PUB is selling the economic interests to a commercial agent, then it makes no sense for the commercial agent to sabotage water supply and incur a penalty.

If PUB is concerned that the commercial agent will deliberately incur a financial penalty and sabotage water supply @ all costs, then it should never have sold TS to a commercial player i.e. it should be clear that physical infra is owned, and operator either state-owned or TLC-linked.

(22-10-2018, 08:30 AM)tanjm Wrote: Now that I think about it, there is no need to do anything immediate about the perpetuals because Hyflux doesn’t have to put up any cash for redemptions or even coupons (as Long as no dividends are paid to common equity). Am I missing something here?

They could also do what you said and buy over the perpetuals at "discounted" price..

(22-10-2018, 08:51 AM)AQ. Wrote: If PUB is concerned that the commercial agent will deliberately incur a financial penalty and sabotage water supply @ all costs, then it should never have sold TS to a commercial player i.e. it should be clear that physical infra is owned, and operator either state-owned or TLC-linked.

Because Mahathir is back in power?
joke aside, I think they had not thought that Hyflux would end up in such a state and in the "interest $$$" of Singapore in 2011, they awarded the contract to Hyflux.

I had quoted a similar example but with lesser impact - Kopitiam square in Sengkang. They awarded to the highest bidder($501k per month !@) without considering the impact to the residents and hawkers.

TS was signed in 2011 and Kopitiam sq in 2009. Before 2011 election, everything was measured in $$$.

(22-10-2018, 08:30 AM)tanjm Wrote: Now that I think about it, there is no need to do anything immediate about the perpetuals because Hyflux doesn’t have to put up any cash for redemptions or even coupons (as Long as no dividends are paid to common equity). Am I missing something here?

Well you can be hopeful, but if i am Salim, i will take the opportunity to restructure, and ask that the company cuts down its preference shares and perpetual bonds or what you call it, because in name they appear to be equity but if i am the owner of Hyflux, i wont want these interest bearing equity to be on my balance sheet. Regardless of what you call it, if i have to fork out like 30 or 40 or 50m per year on all these so called equity, wow, i would rather not own Hyflux because i am uncertain if Hyflux can even make so much money per year in the first place. Olivia can talk how profitable her company is, but at the end of the day, the profit/loss statement speaks for itself

Think about it, if i am Salim, why would i want to own Hyflux if i cant receive dividends on the 60% common equity i put into Hyflux, wouldnt it be better for me to put my money into fixed deposits?

(22-10-2018, 10:09 AM)yeokiwi Wrote:

(22-10-2018, 08:51 AM)AQ. Wrote: If PUB is concerned that the commercial agent will deliberately incur a financial penalty and sabotage water supply @ all costs, then it should never have sold TS to a commercial player i.e. it should be clear that physical infra is owned, and operator either state-owned or TLC-linked.

Because Mahathir is back in power?
joke aside, I think they had not thought that Hyflux would end up in such a state and in the "interest $$$" of Singapore in 2011, they awarded the contract to Hyflux.

I had quoted a similar example but with lesser impact - Kopitiam square in Sengkang. They awarded to the highest bidder($501k per month !@) without considering the impact to the residents and hawkers.

TS was signed in 2011 and Kopitiam sq in 2009. Before 2011 election, everything was measured in $$$.

agree... govt had to learn the hard way why LKY & team is not always $$$ driven... it's strategic driven. If LKY is still around the Singapore O&G business in Brazil would have been closed down.

Singapore Inc model doesn't work. Putting up artificial competitionfor public goods to have market price doesn't work. Awarding HDB contracts, including lifts, to cheapest contractor doesn't work.

Like I always say, if so easy just look at numbers or cheapest, my 16 year old daughter also can do the job

BTW YTL does own a power plant which I would think is strategic asset as well

(22-10-2018, 01:15 PM)money Wrote:

(22-10-2018, 08:30 AM)tanjm Wrote: Now that I think about it, there is no need to do anything immediate about the perpetuals because Hyflux doesn’t have to put up any cash for redemptions or even coupons (as Long as no dividends are paid to common equity). Am I missing something here?

Well you can be hopeful, but if i am Salim, i will take the opportunity to restructure, and ask that the company cuts down its preference shares and perpetual bonds or what you call it, because in name they appear to be equity but if i am the owner of Hyflux, i wont want these interest bearing equity to be on my balance sheet. Regardless of what you call it, if i have to fork out like 30 or 40 or 50m per year on all these so called equity, wow, i would rather not own Hyflux because i am uncertain if Hyflux can even make so much money per year in the first place. Olivia can talk how profitable her company is, but at the end of the day, the profit/loss statement speaks for itself

Think about it, if i am Salim, why would i want to own Hyflux if i cant receive dividends on the 60% common equity i put into Hyflux, wouldnt it be better for me to put my money into fixed deposits?

Salim would not be wasting his time unless he thought there was a reasonable chance of the deal going through. Hence I’m thinking something is missing from this picture.

The devil's in the details (which I don't have time to dig deeper unfortunately).

1. What exactly is the Maybank debt secured on? Is this loan maturing or is it a covenant issue (e.g. loan to value, loan to cashflow). If it is a covenent issue, then the proposed investment by Salim may change things.

2. A quick look at the announcement shows that there is a long string of conditions precedent, one of which includes settlement of preference and perpetuals. Once again, it is at the option of retailers to cock a snoot at Salim and co if the terms aren't reasonable, and I suspect their threshold is different from an institutional investor.

If i have to make a guess, i think Salim would force a haircut on the perpetuals or have them convert to common equity, i dont think they can afford to redeem the perpetuals anyway

(22-10-2018, 02:43 PM)money Wrote: If i have to make a guess, i think Salim would force a haircut on the perpetuals or have them convert to common equity, i dont think they can afford to redeem the perpetuals anyway

I think they can afford. 
They are just sharks.

Perpertuals and perps have no redemption date. 

They can sell assets such as TS at a market price of 500 million bidded by Sembcorp ( estimated based on loan outstanding to Maybank and then subtracting the loss provision that maybank placed in their books). Clear Maybank debt. 
Also TS is a loss making asset.Selling it away gets rid of the noose.

The other assets are not making a loss. Captial injection by SM 400 million + 130 million - 30 million can be used to pay back the MTNs 265 million ( 2018 and 2019).  This leaves it with about 235 million.

Now both of the above debts ( Maybank and MTNs) are settled.
Leaving the perps and perpertuals. Since these have no redemption, using the 235 million, pay back the accumulated dividends and distributions, there is still some remaining ...

There is no default or credit event since technically debts are settled and perps and prefs are NOT debt.

In addition to inflow of cash ( performance bond) upon completion of Tuasone, they can keep paying the dividends and distributions. Basically just slowly build up from then on.... they can also buy back the prefs from the open market which will be selling at a discount to lighten the burden.

With SM and debts settled, financing can flow. With strong partners and an unexplored Indonesian Market, things will look bright.

BUT, SM just wants the full and final settlement of perps, prefs, MTNs e,t,c. So they are sharks. Not white knights. I hope the above pans out but Media seems to state that they intend to keep assets intact.

According to Hyflux's webpage https://www.hyflux.com/financial-reorgan...n-process/ updated today 22 Oct 2018,  .........

Q: "How does this affect the Tuaspring sale process? "
A: "The Investor is investing in the existing Hyflux Group, which includes Tuaspring. Hyflux will no longer be pursuing a voluntary sale of Tuaspring and will be engaging with the secured bank creditor on this."
...........

It seems that SM / Hyflux intends to keep TS.

My guess is :

The Sembcorp bid may be around 400m which is the amt Maybank can recover in the event of a sale to Sembcorp. Now, SM is injecting a similar amount for Hyflux to pay off Maybank and the 130m working capital is to last till the various projects turn cash flow positive/profitable.

This makes it likely that one of the plans would be for the preference shares/perpetual bonds holders' stakes to get converted into equity, making it a "cleaner equity" structure, and SM would own 60% after that.