Hyflux

[ACTIVIST SPEAKS]

Salim will only put in money after all MTN, PCS and CPS are cleaned off from the balance sheet thru a conversion into equity. If Hyflux's business is viable, wouldn't it be better to just work on the conversion ratio of these instruments and forget about Salim?

Conversely, if Hyflux must have Salim's money to survive even after all MTN, PCS and CPS are converted to equity, then the entire operation was never capable of working successfully....ever

[weijian]

I think there is a difference between business risk and balance sheet risk (even though they affect each other). Hyflux is probably more geared towards the latter.

If one looks at Pak Anthony's businesses, they are all in staples (food, flour, power, telecom etc) with generally lower business risk. I respect Godfathers and so i reckon an offspring of Godfather shouldn't be too far off?

[karlmarx]

Salim will only put in money after all MTN, PCS and CPS are cleaned off from the balance sheet thru a conversion into equity.  If Hyflux's business is viable, wouldn't it be better to just work on the conversion ratio of these instruments and forget about Salim?  

Conversely, if Hyflux must have Salim's money to survive even after all MTN, PCS and CPS are converted to equity, then the entire operation was never capable of working successfully....ever

Hyflux's business was not viable, which explains its present predicament. But after restructuring, Hyflux may have a viable business.

Upon change of control (entry of SM Investments as majority owner), Hyflux is expected to repay all bank loans. After that, Hyflux may (re)negotiate for new loans. The $400m that SM is injecting into Hyflux is intended to partially pay off Maybank's loan; the rest of the loan is expected to be paid using proceeds from Tuaspring's sale. Unless Tuaspring is able to fetch a selling price that can repay all of Hyflux's bank creditors, it is not possible to ignore SM Investments, or other potential equity investors. 

If the restructured Hyflux no longer takes on long-term capital-intensive development projects, and is able to generate positive FCF/profit with whatever assets it is left with, then it could be an attractive business. Furthermore, the restructured Hyflux will no longer be encumbered by hefty interest and coupon payments that consume most of its cashflow/profits. It is likely, however, that the restructured Hyflux will take on some debt. After all, Anthony Salim is a habitual user of debt.

The restructured Hyflux will probably be an interesting prospect.

[AQ.]

1.  Debtwire has leaked previously a proposed deal presented to the senior unsecured (which was apparently shot down) 

of the 400mio equity+130mio loan from SM:
249mio will be working capital, with remaining 251mio to settle all claims.

1.9bio senior claims gets 200mio cash + 15% NewCo
0.9bio perps/Pref/common equity gets 39mio cash+22% NewCo
management gets 3% NewCo

So the ultimate proposal will prob be something like the above, +/-.

2. One small salient development was that SM group finally got access to TuaSpring (TS) data, 3mths after the whiteknight announcement in Oct18. This suggests that PUB has given its approval for the change in ownership (which was not obvious to me previously)

I still do not see why Indonesian 60% ownership of NewCo which owns 100% of TS, is safer than Malaysian 100% ownership of TS. And if indeed there are safeguards to ensure safety regardless of foreign ownership, then why not open the bids for TS to all bidders in the first place?

3. TS will not be sold. In fact, the precondition of SM injection is that TS remains under NewCo. Personally I think SM is very smart in wanting TS. In the long term, esp after the take-or-pay gas contracts strangling TS expires, there should be decent synergies between TS, PacificLight (which is a genco linked with SM) together with the fact they have piped gas flowing directly from Indonesia to Sg. How this works out is yet to be clear though.
 
I don't see why anyone will want to pay much for the rest of Hyflux's EPC biz, esp with pretty much all the projects in trouble.

[Stocker]

Anton Salim 's father Lim Swee Liong a.k.a Sudomo Salim took up Singapore citizenship in 1998 during the AFC and riot in Indonesia . Anton could also be holding a Singapore passport ?

[karlmarx]

Thanks AQ. for correcting my misunderstanding. 

1. I am surprised that unsecured bank creditors are willing to take such a massive cut and not push for sale of TS to recover their capital.

2. Between Indonesia and Malaysia, I think it is not difficult to see which is friendlier to Singapore, and hence, less of a threat to national security. Even if a Malaysian corporate interested in TS is guided by business principles, it may be arm-twisted by its godfather friends to act in a manner that is detrimental to Singapore. YTL couldn't have grown to what it is today without the support of UMNO.

When asked about how his “close links” with former Prime Minister Tun Dr Mahathir Mohamad had contributed to YTL’s successes, Yeoh denied being the latter’s “crony” and credited the company’s achievements to “innovation”.

“At that time… I think up till today, almost 21 years later, people still think I’m a crony of Mahathir’s.

https://www.malaymail.com/news/malaysia/...ays/680733

Although Anthony Salim also benefited from Suharto's assistance, those days of crony capitalism between Salims and the Indonesian state are over since the AFC in 1997. The Salims have been diversifying out of Indonesia even prior to the AFC; they knew their days were numbered. Sudono, Anthony's father, never returned to Indonesia after AFC and was believed to have resided in Singapore since. Andree -- Anthony's brother -- and his son Daniel, are also believed to be residing in Singapore. 

3. Since the haircut to the PCS, CPS, and MTN are massive -- the residual value being 10 to 20 cents on the dollar -- why are they not trading at those levels?

https://www.bondsupermart.com/main/bond-.../LW1439220

Hyflux is still in the 'too hard' category for me.

[AQ.]

1. I am surprised that unsecured bank creditors are willing to take such a massive cut and not push for sale of TS to recover their capital.


3. Since the haircut to the PCS, CPS, and MTN are massive -- the residual value being 10 to 20 cents on the dollar -- why are they not trading at those levels?

1. There r 2 bank creditors: Maybank which is secured over TS, and others which are nonsecured.

    Maybank can, but is not forcing a sale, since the sole approved bidder for TS i.e. Sembcorp is bidding below its loan amt. Thus a forced sale means a writedown which Maybank is not keen on. Presently, Maybank is discussing some sort of restructuring with SM - perhaps a lower-interest-for-longer deal. Maybank gets its interest payment, and hopefully eventually full recovery; SM gets its coveted stake in TS.

    Unsecured bank claims have no claims over TS. In any case all sale proceeds will go to Maybank with nothing left over.

3. Not sure i get ur pt? The securities hv been halted from trading since May18.

[karlmarx]

Thanks again for clarifying.

1) This means NewCo will still have quite a fair amount of loans due to Maybank; about $500m maybe?

2) I was not aware the debt instruments were also halted from trading. My impression was that they could be traded OTC. Can a holder of these instruments still find some way to trade them?

[specuvestor]

1.  Debtwire has leaked previously a proposed deal presented to the senior unsecured (which was apparently shot down) 

of the 400mio equity+130mio loan from SM:
249mio will be working capital, with remaining 251mio to settle all claims.

1.9bio senior claims gets 200mio cash + 15% NewCo
0.9bio perps/Pref/common equity gets 39mio cash+22% NewCo
management gets 3% NewCo

So the ultimate proposal will prob be something like the above, +/-.

2. One small salient development was that SM group finally got access to TuaSpring (TS) data, 3mths after the whiteknight announcement in Oct18. This suggests that PUB has given its approval for the change in ownership (which was not obvious to me previously)

I still do not see why Indonesian 60% ownership of NewCo which owns 100% of TS, is safer than Malaysian 100% ownership of TS. And if indeed there are safeguards to ensure safety regardless of foreign ownership, then why not open the bids for TS to all bidders in the first place?

3. TS will not be sold. In fact, the precondition of SM injection is that TS remains under NewCo. Personally I think SM is very smart in wanting TS. In the long term, esp after the take-or-pay gas contracts strangling TS expires, there should be decent synergies between TS, PacificLight (which is a genco linked with SM) together with the fact they have piped gas flowing directly from Indonesia to Sg. How this works out is yet to be clear though.
 
I don't see why anyone will want to pay much for the rest of Hyflux's EPC biz, esp with pretty much all the projects in trouble.

I actually thought your point 3 answered your point 2 Indonesia supplied the gas.

[ACTIVIST SPEAKS]

回首来时路….2016

Hyflux launched $300M 6%PCS (option to upsize to $500m). Reserve offer to Management of up to $20m. Material part of the proceeds intended to be used to repay $100m 3.5% MTN and $175m 4.8% PCS.

Strong support. Upsized to $500m. Hyflux issued $329m to the public, $165m to placement and but only $6m to management.

Interestingly,
1. Hyflux can do with $300m at 6% but also no problem with $500m.
2. Hyflux issued a 6%PCS to retire the 4.8%PCS.
3. Hyflux management's reserve issue was undersubscribed and only $6m out of $20m reserved were taken.

It is estimated that PAN-EL affected 5,000 investors and the Mini-Bond, 10,000. Hyflux has at least 30,000 retail in their securities to whom just received the message that they will get zero if they do not agree to the restructuring.

This is bigger than Pan-El and Lehman but ….. did we just get used to all these and accept such failures as part and parcel of life?