Hyflux

[donmihaihai]

Dividends will be not reflected as expenses in p&l. Because it is not. There is some push pull on dividend to pref shareholder but dividend is always a reduction to retained earnings.

On finance cost. There are 3 things to take note. 1) when to recognise , 2) recognise where. Ie p&l or b/s 3) when to pay. Look for these and it will answer your question.

[karlmarx]

Hyflux raised $400 million from perpetual preference shares in 2011 and $475 million in perpetual capital securities in 2014. These instruments carry a cumulative dividend of 6% a year and would be classified as financial liabilities — but for the company’s right to defer the cash payments indefinitely. Under FRS 32, this unconditional right allows the instruments to instead be presented as equity.

Such financial engineering means the company was able to remove the “dividends” as opposed to “interest payments” from its profit-and-loss statement, thereby giving the illusion of higher profits.

For instance, the company paid dividends on both perpetual securities totalling $269.8 million between 2011 and 2017. If the dividends were interest payments, the reported pre-tax profit totalling $156.1 million for the entire period would turn into a loss of $113.7 million.

Total compliance in financial reporting, but was it misleading?
https://www.theedgesingapore.com/portfol...misleading

hi Behappyalways,
I vaguely remember you said this before and i managed to dig it out: https://www.valuebuddies.com/thread-810-...#pid147390. 

But i didn't pay much attention then. I took a look at another perpetual issuer Sembcorp, and indeed based on its AR17, it is evidently clear that the "interest costs" of the perpetuals are not included in the financing costs under the P/L.
Sembcorp AR17 http://www.sembcorp.com/en/media/514213/...report.pdf (page40)

Thanks for sharing Tong's article (Tong is pretty legendary in Msia for straddling both sides of the political divide and paying 2mil USD to the 1MDB whistleblower) and it is good knowledge to drill into the head.

I remember seeing this discussed in this thread, perhaps closer to the beginning page, at about the time these PCS and CPS instruments were introduced. 

'Net profit' is an accounting concept. It may or may not represent the earning ability of the company, depending on how it is calculated by the company's accountants. As such, a prospector will have to scrutinise all items on the P&L statement to ensure that the items reflect -- or at least are not far from -- reality. 

Depreciation, impairment, bad debt provision, and fair value changes are some of the other items that can also be (ab)used to alter the perception of a company's earning ability.

[weijian]

Hyflux raised $400 million from perpetual preference shares in 2011 and $475 million in perpetual capital securities in 2014. These instruments carry a cumulative dividend of 6% a year and would be classified as financial liabilities — but for the company’s right to defer the cash payments indefinitely. Under FRS 32, this unconditional right allows the instruments to instead be presented as equity.

Such financial engineering means the company was able to remove the “dividends” as opposed to “interest payments” from its profit-and-loss statement, thereby giving the illusion of higher profits.

For instance, the company paid dividends on both perpetual securities totalling $269.8 million between 2011 and 2017. If the dividends were interest payments, the reported pre-tax profit totalling $156.1 million for the entire period would turn into a loss of $113.7 million.

Total compliance in financial reporting, but was it misleading?
https://www.theedgesingapore.com/portfol...misleading

hi Behappyalways,
I vaguely remember you said this before and i managed to dig it out: https://www.valuebuddies.com/thread-810-...#pid147390. 

But i didn't pay much attention then. I took a look at another perpetual issuer Sembcorp, and indeed based on its AR17, it is evidently clear that the "interest costs" of the perpetuals are not included in the financing costs under the P/L.
Sembcorp AR17 http://www.sembcorp.com/en/media/514213/...report.pdf (page40)

Thanks for sharing Tong's article (Tong is pretty legendary in Msia for straddling both sides of the political divide and paying 2mil USD to the 1MDB whistleblower) and it is good knowledge to drill into the head.

I remember seeing this discussed in this thread, perhaps closer to the beginning page, at about the time these PCS and CPS instruments were introduced. 

'Net profit' is an accounting concept. It may or may not represent the earning ability of the company, depending on how it is calculated by the company's accountants. As such, a prospector will have to scrutinise all items on the P&L statement to ensure that the items reflect -- or at least are not far from -- reality. 

Depreciation, impairment, bad debt provision, and fair value changes are some of the other items that can also be (ab)used to alter the perception of a company's earning ability.

For calculation of FCF, generally investors look at the operating cash flow and then work on the investing portion. So for items like depreciation/impairment/fair value changes etc, the general FCF methodology would cover all of them.

The cunning thing for PCS's "interest costs" is that they fall under the "financing portion" in the CF statement, and it is mixed together with all the bank/dividend payments. So it is much easier missed out for the average OPMI who do not go details or banking on some shortcut/heuristics. This is a good reminder of the amount of work (and not assumptions) that is required for understanding financial statements..

[karlmarx]

For calculation of FCF, generally investors look at the operating cash flow and then work on the investing portion. So for items like depreciation/impairment/fair value changes etc, the general FCF methodology would cover all of them.

The cunning thing for PCS's "interest costs" is that they fall under the "financing portion" in the CF statement, and it is mixed together with all the bank/dividend payments. So it is much easier missed out for the average OPMI who do not go details or banking on some shortcut/heuristics. This is a good reminder of the amount of work (and not assumptions) that is required for understanding financial statements..

It is true that using FCF will eliminate all those non-cash items. But those non-cash items are included in the P&L statement because they generally provide a more accurate picture of a company's earning ability. Personally, I don't take a 'P&L only' or 'CF only' approach in determining a company's earning ability, because we can be easily misled from either approaches. 

1) The example you cited on PCS' 'interest costs' falling under 'financing cashflow' is one of the pitfalls. Some of the more conservative companies place all their interest payments under 'operating cashflow,' while the aggressive ones place them in 'financing cashflow.' Maybe the accountants take the 'aggressive' approach because they want to exploit the ignorance of OPMI's accounting knowledge (OCF - ICF = FCF; so easy). I don't know. I'm also not sure what the accounting rules are on where to place interest payments. Regardless, we should always fall back on what makes sense to us as OPMI. This means we have to question a lot of what we see. Which means a lot of work. 

There are other ways to dress up FCF. A company records its investment property/stock/bond/fixed deposit transactions under 'investing cashflow.' Said company could have a very negative investment cashflow on one year when it placed lots of cash into fixed deposit. And then receive proceeds these fixed deposits gradually over the next few years. This has the effect of making it look like the company isn't spending as much on capital expenditure -- perhaps causing the OPMI to be misled into thinking that the company is light on capital requirements, or that FCF is very high -- if you just took the entire 'investing cashflow' as capital expenditure. 

2) So actually the point I was trying to make was not that non-cash items should be removed from P&L, but that their accuracy in relation to reality be considered. This is because they are usually not based on what happened, but what they think will happen. So a company could be writing down their PPE faster, or making larger doubtful debt provisions, both of which result in lower profits. Conversely, a company could be more aggressive in recognising profits by being slow in writing down PPE, or making smaller doubtful debt provisions.

[AQ.]

https://www.channelnewsasia.com/news/sin...s-11367034

More importantly, PUB will waive compensation from TS which is estimated to be triple digit millions.

If SM means what they said during the 2nd Townhall i.e. the intention is to drive synergies between TS+PacLight+their own piped gas, and EPC for Indonesian projects (i think the latter is just bluster), then the termination of the WPA should hv no bearing on SM's plans. In fact the fact they dun have to subsidise water to PUB anymore means they should be willing to raise their bid i/o walking away.

Time to see what Pak's real intention is.

[Shiyi]

Can anyone enlighten me the following:

PUB says that the current valuation of Tuas Spring is negative? How is it possible that the plant worth nothing?
Does MayBank have the first claim on the plant or PUB could just take over at zero dollar?

SIAS says the PUB move has a "huge positive implications" for bondholders. Why is it positive?

[wonghw12]

Can anyone enlighten me the following:

PUB says that the current valuation of Tuas Spring is negative? How is it possible that the plant worth nothing?
Does MayBank have the first claim on the plant or PUB could just take over at zero dollar?

SIAS says the PUB move has a "huge positive implications" for bondholders. Why is it positive?

I am not sure it is a positive - I see the new announcement as a huge negative.

1. Confirmation that PUB will not be paying book value but 0 to take over Tuaspring
2. Tuaspring is not only NOT an asset, but it is a huge liability
3. Salim-Medco wanted Tuaspring. But if PUB takes it back, they may walk away and leave creditors without a deal

[ACTIVIST SPEAKS]

From announcements by various parties, the situation is :

Hyflux spent more than 1 billion dollars to build a power plant with a desalination facility to satisfy an obligation with PUB in which the company, knowingly, is expected to contractually lose money for next 25 years.....wow, this is entrepreneurship-Singapore style!!!

[Stocker]

From announcements by various parties, the situation is :

Hyflux spent more than 1 billion dollars to build a power plant with a desalination facility to satisfy an obligation with PUB in which the company, knowingly, is expected to contractually lose money for next 25 years.....wow, this is entrepreneurship-Singapore style!!!

A veteran like Ms. Olivia Lum who won many prestigious awards could miscalculate the big numbers ?

[Sampling]

I see a lot of "investors" or shall I say punters calling foul when they lose money.

Everything is in the FS released on SGX for everyone to see. Losing money on this is equivalent to people putting money into companies that previously went bust. Buying the bonds/perps is similar to buying Venezuelan bonds... Level of risk of going bust vs rewards (5-6% returns annually)... Just gotta learn and move on....

I see this as equivalent to buying 4D or Toto from Sing Pools. sometimes you win, sometimes you lose money.