Hyflux

[AQ.]

The root of the problem is that TuaSpring is bleeding. It is bleeding cos USEP<(Costs+All other expenses).
Even if everyone haircuts etc, the root problem is still not gone i.e. USEP < Costs even if all expenses goes to 0. TuaSpring is still going to bleed. As long as it bleeds, noone will buy it at book.

So the only way to solve the issue is either for USEP to increase (it has been, but unlikely to spike in the short term from the 100s to the 200s for profitability unless all gencos cut output together) or Costs have to go down drastically.

The only way for Costs to go down is for an arrangement between the gencos and the regulators where the vesting arrangements are modified. Unfortunately the industry is spending 1bio p.a. burning LNG to generate power that noone needs. Talk abt being environmentally friendly...

So 
1. Insolvency is guaranteed in present state if all creditors demand liquidation.
2. Insolvency will arrive eventually even if there's no liquidation as long as TuaSpring burns $100mio p.a.
3. The whole mess can be solved quite easily if there's an arrangement between the industry and the regulators as a virtuous cycle then emerges
    a. Costs go down. Fixed costs still incurs.
    b. Supply decreases and USEP rises
    c. PV of TuaSpring recovers as USEP-Costs>0
    d. If debt load is cut with help from all creditors, TuaSpring becomes profitable, helping to push c) up.
    e. With a more optimistic environment  where industry dynamics restores, TuaSpring should still be attractive for outside capital.

The court filings have revealed some optimism over the number of parties that can provide aid, but the most important piece is still missing i.e. is the industry going to work together or continue to kill each other, and is the regulator open to some discussions.

[BRT]

Hyflux Lum is framing this as a liquidity issue. But some VBs are calling the bluff and believe that the assets on the BS have to be written down, and when it is written down, it obviously becomes a solvency issue instead.

Weijian, how did the VBs find out its a bluff ?

We won't know as numbers are held confidential as a P3 state by the judge.

Join the retail investors group for updates on hyflux if u own perpetual securities , preference shares or hyflux stock

https://t.me/hyflux_retail

hi sgdividends,
I dont know what confidential numbers you are talking about. VBs generally look at what the numbers tell them, not what others tell them.

You can refer to forummer AQ post that sums up the issue: https://www.valuebuddies.com/thread-810-...#pid147542. What Behappyalways and CY09 has been saying, also make a lot of sense.

I will add my small piece here:
- If you refer to Hyflux's 1Q18 statements, it's 1.1 bil of equity (including treasury shares) is basically funded by 600mil capital + 500mil perpetuals. Retained earnings is basically negligible or slightly negative.
- All this means that the moment Tuaspring cannot be sold at current value on the books (which is the key point that VB folks have recognized), there is no cushion at all from retained earnings and capital/perpetuals have to take a hit. This means that that this turns into a solvency problem - To resolve a solvency problem without liquidation, it calls for either/both capital (equity owners) and perpetual (the bond holders) to take a hit - shareholders (capital) suffer a dilution and bond holders (perpetual) take a cut.

hi weijian, i dont understand why the asset cannot be sold at its current BV, and how retained earnings are needed for the cushion. if you dont mind, could you please explain that part to plug my lack of understanding?

[sgdividends]

The root of the problem is that TuaSpring is bleeding. It is bleeding cos USEP<(Costs+All other expenses).
Even if everyone haircuts etc, the root problem is still not gone i.e. USEP < Costs even if all expenses goes to 0. TuaSpring is still going to bleed. As long as it bleeds, noone will buy it at book.

So the only way to solve the issue is either for USEP to increase (it has been, but unlikely to spike in the short term from the 100s to the 200s for profitability unless all gencos cut output together) or Costs have to go down drastically.

The only way for Costs to go down is for an arrangement between the gencos and the regulators where the vesting arrangements are modified. Unfortunately the industry is spending 1bio p.a. burning LNG to generate power that noone needs. Talk abt being environmentally friendly...

So 
1. Insolvency is guaranteed in present state if all creditors demand liquidation.
2. Insolvency will arrive eventually even if there's no liquidation as long as TuaSpring burns $100mio p.a.
3. The whole mess can be solved quite easily if there's an arrangement between the industry and the regulators as a virtuous cycle then emerges
    a. Costs go down. Fixed costs still incurs.
    b. Supply decreases and USEP rises
    c. PV of TuaSpring recovers as USEP-Costs>0
    d. If debt load is cut with help from all creditors, TuaSpring becomes profitable, helping to push c) up.
    e. With a more optimistic environment  where industry dynamics restores, TuaSpring should still be attractive for outside capital.

The court filings have revealed some optimism over the number of parties that can provide aid, but the most important piece is still missing i.e. is the industry going to work together or continue to kill each other, and is the regulator open to some discussions.

AQ , thanks. Your explanation is very clear and I took your post to cut and paste to the telegram group.

Hope u don't mind

Join the retail investors group for updates on hyflux if u own perpetual securities , preference shares or hyflux stock

[/url][url=https://t.me/hyflux_retail]https://t.me/hyflux_retail

[cfa]

The root of the problem is that TuaSpring is bleeding. It is bleeding cos USEP<(Costs+All other expenses).
Even if everyone haircuts etc, the root problem is still not gone i.e. USEP < Costs even if all expenses goes to 0. TuaSpring is still going to bleed. As long as it bleeds, noone will buy it at book.

So the only way to solve the issue is either for USEP to increase (it has been, but unlikely to spike in the short term from the 100s to the 200s for profitability unless all gencos cut output together) or Costs have to go down drastically.

The only way for Costs to go down is for an arrangement between the gencos and the regulators where the vesting arrangements are modified. Unfortunately the industry is spending 1bio p.a. burning LNG to generate power that noone needs. Talk abt being environmentally friendly...

So 
1. Insolvency is guaranteed in present state if all creditors demand liquidation.
2. Insolvency will arrive eventually even if there's no liquidation as long as TuaSpring burns $100mio p.a.
3. The whole mess can be solved quite easily if there's an arrangement between the industry and the regulators as a virtuous cycle then emerges
    a. Costs go down. Fixed costs still incurs.
    b. Supply decreases and USEP rises
    c. PV of TuaSpring recovers as USEP-Costs>0
    d. If debt load is cut with help from all creditors, TuaSpring becomes profitable, helping to push c) up.
    e. With a more optimistic environment  where industry dynamics restores, TuaSpring should still be attractive for outside capital.

The court filings have revealed some optimism over the number of parties that can provide aid, but the most important piece is still missing i.e. is the industry going to work together or continue to kill each other, and is the regulator open to some discussions.

AQ , thanks. Your explanation is very clear and I took your post to cut and paste to the telegram group.

Hope u don't mind

Join the retail investors group for updates on hyflux if u own perpetual securities , preference shares or hyflux stock

[/url][url=https://t.me/hyflux_retail]https://t.me/hyflux_retail

AQ hit the head of the nail , very realistic analysis ! If Hyflux mark its assets to market today ,  liability could be greater than shareholder equity .

[weijian]

hi weijian, i dont understand why the asset cannot be sold at its current BV, and how retained earnings are needed for the cushion. if you dont mind, could you please explain that part to plug my lack of understanding?

hi BRT,

(1) The current "book value" of Tuaspring is a PV based on DCF model of the guaranteed payments from PUB for the water, and also the expected payments from selling the excess water/electricity. The key word is "expected" and with the asset having a 25year concession (meaning value=0 after 25years), it is making losses after accounting for depreciation/amortization, and so this means that some assessment is required to update the PV again as it probably did not meet expectation. Coincidentally, the asset was transferred to "asset available for sale" in 2017 and it seems like conveniently, Tuaspring did not have to review the value in 2017 (or maybe even in 2018). That said, Mgt made a call to sell in Jan2017, and 18months down the road, the asset is still not sold - This means that the Market has spoken about the veracity of the "book value".

(2) Lets have an example below about retained earnings.
- I start a durian stall with 100dollars (capital) and then asked my best friend to chip in another 100dollars (perpetuals). Since we are perpetual best friends, i don't have to account it on the books as a debt. So my total equity is 200 dollars (my capital and my best friend perpetual).
- Let's say with the 200dollars capital+perpertual, I only use money to pay for durians to the supplier, then all my equity would be 200dollars worth of durians (inventory).
- Let's say over next 5 years, my net earnings is 100dollars in total, and if i don't give out any dividends, that means that i would have 100dollars of cash. I could use the cash to order more durians (50dollars) and then keep the remaining 50dollars extra as cash --> So now, i would have 250dollars of durians (inventory) and 50dollars of cash --> so out of this 300dollars of equity i have in my durian stall, it can be broken down into 100dollar capital + 100dollar perpetual + 100dollar retained earnings.
- One fine day, when i open my durian stall, i realized that monkeys came and eat 50dollars worth of durians. Hence now, i have to write off this 50dollars and my equity becomes 250dollars. From accounting standpoint, my 250dollars of equity is 200dollar durian+ 50dollar cash and can be broken down into 100dollar capital + 100dollar perpetual + 50dollar retained earnings.
- In an alternate scenario, if i wasn't able to earn any money over 5years and monkeys came, then i would end up with only 150dollars of durian (inventory) which is also all my equity. At this time, i would have to ask myself - who is going to pay for that 50dollar loss (is it my capital or my friend's perpetual?), if i decide to wind up for business tomorrow.

hope this make sense...

[sgdividends]

There are 34 000 retail mom and pops invested in their preference shares and perpetuals.
There are 16000 retail mom and pops invested in their ordinary shares.

Join the retail investors group for updates on hyflux if u own perpetual securities , preference shares or hyflux stock

https://t.me/hyflux_retail

[sgdividends]

Hi Weijian,

Regarding the 18 months and still unsold and about the veracity of the book value,

Sometimes I wonder if the 58% power generator being currently owned by foreign entities could result in a smaller market for buyers of Tuaspring if they are restricted to local buyer's only due to security reasons. Who knows.

Already the restriction of not one generator being able to own 25% of the power is already a restriction if say one of the current generators owning already near 25% wants to buy. Who knows.

Join the retail investors group for updates on hyflux if u own perpetual securities , preference shares or hyflux stock

https://t.me/hyflux_retail

[CY09]

Hi sgdividends,

Yes Singapore can pass a regulation that Power generation can only be owned by Singapore entities. While such a move will be towards protectionism, if there is enough social pressure the current government may still do it. Perhaps you can start such a movement by organising a rally or writing into Straits Times

[sgdividends]

Actually, it is the other way round CY09.
I meant if because of the restrictions in such a regulated industry , Tuaspring MAY have buyers possibly bidding higher than book value ( for reasons unknown) but been turned away.
The perps, prefs just sway la.

Join the retail investors group for updates on hyflux if u own perpetual securities , preference shares or hyflux stock

https://t.me/hyflux_retail

[sgdividends]

Hi sgdividends,

Yes Singapore can pass a regulation that Power generation can only be owned by Singapore entities. While such a move will be towards protectionism, if there is enough social pressure the current government may still do it. Perhaps you can start such a movement by organising a rally or writing into Straits Times

Btw, our neighbour Malaysia are already doing that... tenega nasional is one such entity that does power generation , distributing and marketing across the whole value chain.

And they are doing really well...maybe even better than SP power profits.. if I recall correctly

And no , I'm not interested at all about starting any movement . I just want back my money so I can retreat back to my humble cave existence

Join the retail investors group for updates on hyflux if u own perpetual securities , preference shares or hyflux stock

https://t.me/hyflux_retail