Hyflux

[CY09]

Right now, Hyflux Tuaspring is making 80 mil in losses based on reported results. Th losses is after factoring amoritisation and all other expenses.

An 80 mil loss means a reduction of 80 mil has to be recorded in the book value. Hence for example if Tuaspring is s$1,400 million in the start of 2018, a 80 mil loss means Tuaspring only has a book value of s$1,320 million at start of 2019. Hence investors are unlikely to pay at current book value but factor in all future losses

[AQ.]

Wouldn't this mean that if an investor buys TuasSpring at a lower price (and thus book it at the transacted price), then the losses will be instantly less? 

A lower purchase price means amortisation will be lower for the new buyer (under similar accounting treatment).

Hyflux will then need to book an impairment on disposal.

[specuvestor]

With a book value of 1.47B and a concession of roughly 20 years.. does it mean depreciation comes in at 70M per annum?

I mean, this 70M annual losses we're talking about here, is this including the depreciation resulting from an inflated book value?

The correct answer should be "The accounting losses include the amortisation, but it is not clear it is linear". It could well be linear i.e. 70mio p.a. but it's just not clear to me.

A clearer picture of Hyflux's (in particular TuaSpring) financial statements is as below.

Once the contract from PUB is granted, Hyflux starts construction. It is important to note that noone, including PUB, pays Hyflux a single cent of cash throughout construction. Hyflux has undertaken to build a plant for PUB, operate it for the concession period, derive all economic value from doing so, and then return the plant to PUB @ the end.

Yet Hyflux books a profit every year during construction i.e. the EPC period, where perversely no cash enters the books (since noone is paying). If Pritam Singh is to phrase it, he will probably say that hyflux is "ownself-pay-ownself".

At the end of construction, cumulative profits reported = X. Balance sheet wise, this reflects as X in retained earnings under equities, Y as debt under liabilities, and X+Y as intangibles (aka book value) under assets. Essentially cumulative profit of X is reported @ this pt where not a cent of cash appears. Assets of X+Y then represents the pv of all economic benefits that the plant is expected to derive over its effective life.

2 things can happen next:
A. TuaSpring is sold @ book. No profit is reported but X+Y in Intangibles become X+Y in cash. Happy days and time to move on to the next EPC.
B. A does not happen and Hyflux is stuck operating it. Amortisation of the book over the remaining life begins and the operating results net of amortisation becomes the P&L.
    Suppose amortisation is 70mio p.a., and TuaSpring manages to make 70mio by selling electricity > costs, then P&L=0.
    Essentially P&L during operating phase = Revenue from selling electricity and water - Costs - Amortisation.

     Balance sheet wise: if operating profit, Asset-wise X+Y in intangibles go down, cash go up,     Liabiltity wise debt go down, Equity wise retained earnings go up.
                                  if operating loss,   Asset-wise X+Y in intangibles go down, cash go down , Liabiltity wise debt go up,    Equity wise retained earnings go down.

All this is quite clear by looking at the statement of cashflows. Operating cashflows will always be -ve and the happening bits occur in financing (when borrowing $) and investment (when divesting)

Cool accounting isn't it?

The cool accounting started years ago... Maybe there is the same option C to sell their stake to below 50% and deconsolidate 

PS I think liability doesnt go up if operating loss, just that leverage goes up when equity goes down.

Firstly i have to admit that i do not follow water stocks closely after my experience with Hyflux and Hyflux Water Trust.

http://www.valuebuddies.com/thread-4415-...#pid112031

^^That was a decade ago. I realized their cash flow and their revenue do not match (to put it mildly) as they pre-book revenue whenever they sell their completed project to another 49% owned entity ie consolidated to associate, but profit from sale booked. So thereafter whenever they make the final sale to the municipal, govt etc the stock doesn't move cause there is no more PnL to book.

In the same logic, they had to sell HWT to recycle their cash cause their business model was extremely capital intensive. I forgot the logic of privatizing it later.

I think it is important to figure out the capital intensity of water stocks, despite the nice macro / concept.

[specuvestor]

Calvary is here

"Sembcorp Industries Ltd. and Keppel Corp. are among parties planning to study bids for Hyflux Ltd.’s biggest asset, according to people with knowledge of the matter, in a sale that’s key to helping the cash-strapped company get back on its feet.
Hyflux’s Tuaspring project, which includes Southeast Asia’s biggest desalination plant, has also drawn interest from Malaysian generator YTL Power International Bhd., the people said, asking not to be named as the process is private. The asset had a book value of S$1.47 billion ($1.1 billion) at the end of March, according to Hyflux exchange filings.
Hyflux had also reached out to billionaire Anthoni Salim’s Metro Pacific Investments Corp. to gauge its interest, the people said."
-Bloomberg

^^ I think Yeokiwi’s rhetorical question on the case of Sengkang Kopitiam Square is in a nutshell the problem of capitalism since the industrial revolution.

It is not something new that policy making is not just about market forces. And when entities that are strategic is in question, moral hazard comes in. Reality is policy makers have to make a judgement call when to interfere, and made complicated by various vested interest. It’s not a simple binary decision.

So main question is whether TuasSpring is strategic and if so if this asset can be extracted out so that the strategic interest can be ringfenced. That’s also the approach of our transport system. Operator model?

[AQ.]

Wow - only 1 bid (sembcorp). Not only is it <book (1.47b), but is not even enough to pay back Maybank's loan (720mio). Keppel didnt even put in a bid. Looks like it's heading to a case where bonds, perps gets converted into equity and existing equity gets diluted massively.

******************

"The two Singaporean companies were the only suitors granted approval by the Public Utilities Board, which regulates the city-state's water supply, to study detailed information on the asset, the sources said."

With only one bid on the table, Hyflux may seek to negotiate with Maybank to explore other options, the sources said. There are overseas investors who remain keen on Hyflux's entire business and may be willing to refinance Maybank's Tuaspring loan, though any investment could again hinge on the Singapore regulator's approval for the Tuaspring ownership, according to the sources.

Hyflux is considering appealing to the Public Utilities Board to approve more parties that were interested in Tuaspring, arguing that the plant's operator would not be in a position to compromise Singapore's water security, the sources said.

The sale had earlier drawn interest from Malaysian tycoon Francis Yeoh's YTL Power International Bhd, people with knowledge of the matter said in August. Hyflux had also reached out to billionaire Anthoni Salim's Philippine company, Metro Pacific Investments Corp, to gauge its interest, the sources said at the time.

https://www.businesstimes.com.sg/compani...nt-sources

[weijian]

Not good news but sort of expected. But it is a bit hard to accept why other non local (but credible) players like YTL were excluded from the detailed study, especially when they were able to buy PowerSeraya from Temasek (2009 was a good time to buy some assets) and the power plant accounted for ~30% of Spore's power needs at that time. The official reason would probably be the fact that Tuaspring is a strategic asset that produces a need that is an existential issue. We probably could live in darkness and survive (unhappily), but we wouldn't survive without clean water. It would also be good to note that YTL group is "reowned" to "fall in line" towards the political power of the day in Malaysia.

Sembcorp is only bidder for Hyflux's Tuaspring plant: sources

SEMBCORP Industries Ltd was the only party that submitted a final bid for beleaguered Hyflux Ltd's Tuaspring project, which includes South-east Asia's biggest desalination plant, people with knowledge of the matter said.

Sembcorp's offer was below Tuaspring's book value and will not be enough to fully pay back loans to the project's main creditor, Malayan Banking Bhd, according to the sources. Keppel Corp, which had earlier shown interest in the asset, did not submit a binding bid by the Oct 1 deadline, the sources said, asking not to be identified because the information is private.

The two Singaporean companies were the only suitors granted approval by the Public Utilities Board, which regulates the city-state's water supply, to study detailed information on the asset, the sources said.

https://www.businesstimes.com.sg/compani...nt-sources

[CY09]

Tuaspring has a book value of 1.47 billion, if actual market valuation is showing that it is only worth 450 million. This means a 1 billion impairment should be done. This will wipe out all perpatual and ordinary shareholders equity in accounting sense.

Similarly, it seems Tuaspring cash flow is not strong enough and Hyflux's other projects are mostly cash flow negative. With 265 million bonds due and Maybank calling back its 450 Million Secured Loan, this means the company as whole is going to face a cash crunch for the next few years. And banks and bondholders will definitely not extend any more loans to them with the clear picture now.

[AQ.]

USEP is actually going thru the roof - for the past few sessions, levels are > 3x my guestimate breakeven for TuaSpring. While such levels are prob spurious and not likely to last, I think the worst is prob over for TS (though the other entities under Hyflux under moratorium do not seem to be doing well looking at the affidavits).

Sg Inc response is also clear by now. In the worst case scenario of a forced sale by Maybank to Sembcorp, PUB is happy since water data stays in Sg Inc. Temasek is prob ok with Sembcorp buying TS @ <50% cost of building TS from scratch and future power dynamics still decent.

My guess for what happens next is for debt+perps to convert to equity, and than a massive placement to a Sg Inc-related non-listed entity, together with the novation of Maybank's loans to a non-bank infrastructure fundy-type. Perhaps once this happens the take-or-pay contracts with the LNG aggregator can be novated elsewhere and the noose ard TS removed.

[dreamybear]

Update from court hearing today(8 Oct 2018) : Besides looking to sell TS, Hyflux also looking for investors for itself ....

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Hyflux in advanced talks with 2 strategic investors
CNA Updated: 08 Oct 2018 10:30PM

SINGAPORE: Embattled water treatment firm Hyflux is in advanced talks with at least two strategic investors and hopes to conclude them by November, its lawyers said during a status conference hearing in court on Monday (Oct 8).

The company is also concurrently working towards a mid-October deadline to sell its Tuaspring Integrated Water and Power Plant, its lawyers said.

Hyflux is racing against the clock to fulfil its obligations even as debts mount.

It was revealed at the status conference - which was part of the court’s requirement for granting the firm a six-month moratorium in June - that Hyflux has been unable to pay rent on two offices over the past month, according to lawyers acting on behalf of HSBC Institutional Trust Services, the trustee of Ascendas Real Estate Investment Trust..........

Read more at https://www.channelnewsasia.com/news/bus...g-10804286

[dreamybear]

Latest update from Hyflux today 8.22pm : Tuaspring divestment deadline extended till 29 October 2018.

More info at : http://infopub.sgx.com/FileOpen/Hyflux%2...eID=529673