Hyflux

[corydorus]

6% CPS of 400M. Will bite a big chunk of their profit ?

[Temperament]

If i am not mistaken, most companies' preferred stocks are non cumulative(interest payment) and what with perpetual redemption date. To me this is head or tail the companies win. It's as good as i have kissed my money goodbye forever. And i have to pray very hard the preferred stock issued company will last forever. This is my personal's very simple interpretation. Therefore i don't believe in preferred stocks.

[freedom]

there was arbitrage opportunity when the pref shares were issued and the share price of Hyflux was above 2, which is to sell the common and buy the pref. it seems that maybe there is going to be another arbitrage opportunity to sell the pref and buy the common, as the common is close to $1.

[RBM]

Temperament - two things:
- there is a difference that needs to be clearly made - i.e. Cumulative vs. non-Cumulative dividend payment. One of the things on which I am not so keen about the Hyflux Preference Share (and it is a Preference Share, not a Bond) is that it is cumulative, meaning they can defer a dividend payment. Nearly all Singapore Corporate Preference Shares and Bonds are Non-Cumulative (e.g. those issued by DBS, OCBC).
- Please bear in mind that the issuer cannot pay a dividend to his equity shareholders before paying his Prefereds their coupon.

[Jared Seah]

Another take away as part of my learning is when institution investors don't like what they see, they vote with their feet.

[Temperament]

Cumulative or non-cumulative dividend payment dose it really makes difference? If Hyflux has no money to pay this year, will hyflux pay 12 % next year? And so on. Is this how cumulative dividend works? i am not sure. If it works this way, then no money to pay means no money to pay. But non-cumulative does not seems to be a better option either. i say no money to pay means no money to pay. If this situation happens, i dare not think of the common share price. Besides i never like the idea to lend my money to someone who has the perpetual option of whether to pay me back my capital or not. To me it's the same as i have kissed my money goodbye forever. Of course, the only consolation is there may be a secondary market for the preference shares.

[d.o.g.]

One of the things on which I am not so keen about the Hyflux Preference Share (and it is a Preference Share, not a Bond) is that it is cumulative, meaning they can defer a dividend payment. Nearly all Singapore Corporate Preference Shares and Bonds are Non-Cumulative (e.g. those issued by DBS, OCBC).

As a matter of clarification, cumulative dividends means that if dividends are not paid this year, they are accumulated and have to be paid later i.e. if a company stops paying for 10 years and decides to pay in year 11, they have to pay all the past 10 years' skipped dividends as well as the dividend in the 11th year. So dividends are never "lost" because they are simply accrued and can potentially be paid out in future.

Non-cumulative dividends do not accumulate, so if they are not paid in one year they are lost forever and will never be made up in future years.

In other words, cumulative dividends are more desirable than non-cumulative dividends from the investor's viewpoint, while the reverse is true from the shareholder's viewpoint.

It is a truism that only financially strong companies are able to issue preferreds with non-cumulative dividends (since investors are confident the dividends will not be skipped) while it is the weaker companies who have to issue preferreds with cumulative dividends (to assuage fears that dividends may be skipped and thus lost forever).

[Temperament]

One of the things on which I am not so keen about the Hyflux Preference Share (and it is a Preference Share, not a Bond) is that it is cumulative, meaning they can defer a dividend payment. Nearly all Singapore Corporate Preference Shares and Bonds are Non-Cumulative (e.g. those issued by DBS, OCBC).

As a matter of clarification, cumulative dividends means that if dividends are not paid this year, they are accumulated and have to be paid later i.e. if a company stops paying for 10 years and decides to pay in year 11, they have to pay all the past 10 years' skipped dividends as well as the dividend in the 11th year. So dividends are never "lost" because they are simply accrued and can potentially be paid out in future.

Non-cumulative dividends do not accumulate, so if they are not paid in one year they are lost forever and will never be made up in future years.

In other words, cumulative dividends are more desirable than non-cumulative dividends from the investor's viewpoint, while the reverse is true from the shareholder's viewpoint.

It is a truism that only financially strong companies are able to issue preferreds with non-cumulative dividends (since investors are confident the dividends will not be skipped) while it is the weaker companies who have to issue preferreds with cumulative dividends (to assuage fears that dividends may be skipped and thus lost forever).

Hi DOG,
"It is a truism........."
Thanks for the clarification. MR Market indeed is very wise.

[sgd]

usually when interest rates are low these kind of preference shares are attractive but the prices will be high, the only way to get it cheap is to wait for interest rates to go up share prices will comes down or jittery sell down during market panic

of course everybody is waiting to get it cheap ler

but if interest rates goes up dramatically business costs goes up will they able to maintain burden of payouts or not.

bear in mind preference shares usually do not have voting rights, so if you have 1000,000 pref share is worth an iota at EGM if they decide to vote against paying out any dividends so beware

[corydorus]

If after 8 years Hyflux still cannot pay how ? Will PS Holders lost 8 years of interests ?
And then Hyflux starts divident on the 9th years. Do PS Holders still be entitled and in full ?