Hyflux

[Shiyi]

I think that holders may have some leverage assuming the deal is a lucrative one for Salim because of the synergies for them. Think of the current proposal as an option premium. By voting no, you take the risk that Salim will walk away or up their offer. There's also the emotional factor for smallholders.

The govt is a stakeholder too because of Tuaspring, which they are concerned about whos hands it falls into in the event of a disorderly liquidation.

A direct govt bailout is highly unlikely because of the slippery slope argument. However, it could come sneakily via a better offer (though not full book value) for Tuaspring by a GLC.

Does anyone know that if the Salim offer has secured the blessing of the authorities, including PUB?

[karlmarx]

“I wish to highlight that in this demand proposal, there are no contractual obligations to redeem capital or to pay interest, therefore it is not a debt and it is placed in the same classification as equity."  

“Our ranking is the same as equity, so is there a need to write off the preference shareholders?”  Mdm Loo Leong Hun, a retail CPS and PCS holder.

She also referred to the company’s 2017 annual report, which suggested that perpetual securities do not fall under the category of a financial liability given that there is “no contractual obligation to repay its principal or to pay distribution”.

I'm not sure if what the writer is asking for makes sense.

If CPF & PCS holders are treated as 'equity,' would that not mean that they will get an even smaller share of the pie, since equity is ranked subordinate to debt?

CPS & PCS holders currently stand to gain about 10% of Newco, while equity holders can expect only about 2%.

[weijian]

“I wish to highlight that in this demand proposal, there are no contractual obligations to redeem capital or to pay interest, therefore it is not a debt and it is placed in the same classification as equity."  

“Our ranking is the same as equity, so is there a need to write off the preference shareholders?”  Mdm Loo Leong Hun, a retail CPS and PCS holder.

She also referred to the company’s 2017 annual report, which suggested that perpetual securities do not fall under the category of a financial liability given that there is “no contractual obligation to repay its principal or to pay distribution”.

I'm not sure if what the writer is asking for makes sense.

If CPF & PCS holders are treated as 'equity,' would that not mean that they will get an even smaller share of the pie, since equity is ranked subordinate to debt?

CPS & PCS holders currently stand to gain about 10% of Newco, while equity holders can expect only about 2%.

Well, we need to consider the amount of write downs:

Hyflux market cap before suspension = 165mil. New value = 18mil --> write down = 18/165 = 11cts every dollar for equity shareholders 
CPS+PCS = 900mil. New value = 95mil --> Write down = 95/900 = 10.6cts every dollar for CPS+PCS holders

So actually, it is treated about the same as equity in this write down (or maybe some like to argue, it is been treated even worst off than equity).

No offence to Madam Loo. But it does seem about right.

[karlmarx]

If we consider the market value of the shares a month or more before they were suspended, or if we value equity based on NAV/NTA, then the write down for equity holders is so much larger.

[ACTIVIST SPEAKS]

Mdm Loo is merely "hoping". In her view, although existing equity is diluted thru debt conversion, it is not written down or written off. Following that argument, CPS and PCS being equity in nature, should be treated exactly like equity....being left alone, not included in the debt conversion and stay as CPS and PCS in the restructured company. Technically in accounting terms, she is not wrong. But again, this is definitely not what Salim wants.

[CY09]

What Ms Loo and some are probably fighting for is that the restructuring term will only affect Bond holders and secured lenders, who in turn will vote for a reasonable rate to convert their stake into cash+ equity.

However, in real sense, it will push debt holders behind the pecking order because perpetuals and preference shares will move ahead of them. To banks, this is not tenable because they may lose more and to Salim, investing in 400 mil and becoming equity will only mean that they are behind the perpetual and preference shares.

The other way round this is that Salim provides $400 mil of cash to Hyflux as a senior debt/bond. They can set it as high interest loan. In this way everyone benefits, assuming banks do not pull the plug and bondholders vote to extend the maturity

[donmihaihai]

Accounting is merely to put those CPS and PCS into number and record them. It doesn't dictate what kind of CPS and PCS that Hyflux issued. Offer document/prospectus does.

Because of it class or structure, there will never be any write-down for equity. An equity holder take whether value it is entitled to and in every case the leftover.

So much time has passed and there is only one offer on the table. Good luck.

[karlmarx]

There is a petition by aggrieved stakeholders of Hyflux that is lobbying the government for a bailout. 

https://www.change.org/p/singapore-gover...ement-fund

Several arguments are put forth, but none of which makes sense to me.


1. Tuaspring is a strategic national asset

Singapore water usage is about 430 million gallon per day. Tuaspring's capacity is about 70 million gallon per day, which means it can fulfil about 16% of Singapore's water needs . So yes, TS is indeed important. But is it in danger of not operating, and hence, not supplying water for our everyday needs?

I believe that it is still business-as-usual at Tuaspring; it still process raw/dirty water into clean water, everyday. Maybe it is running at a lower capacity now, given the operator's (Hyflux) financial difficulties. 

Suppose that the SOA is defeated and Hyflux goes into liquidation. What happens to TS? Maybe production will cease for awhile. TS will be put up for auction, and then Sembcorp (or another approved company) may get TS for what it originally bidded, or even lower. So regardless of what happens to Hyflux, TS will find new owners, and thereafter, continue to be operated. 

So will a liquidation/restructuring of Hyflux have any negative impact to Singapore's water supply? Unlikely. 

On the question of whether SM can be trusted to own Singapore's water assets, it should be noted that some of Singapore power-generating assets are already foreign-owned. And not by countries most Singaporeans will consider to be friendly. Why?

I do not know the government's rationale. But I suppose that since the power and water assets are based in Singapore -- and they are immovable -- the government is still able to physically control these assets, which is what is most important to security. The foreign owners only enjoy the economic benefits (or losses) of the assets. If YTL/SM decides to cut power/water, what is going to stop the armed forces from asserting physical control?

Since 2009 -- when PowerSeraya, which generated about a quarter of Singapore's power supply, was completely sold to YTL -- there has not been any reported national security concerns. And where were the petitioners decrying national security concerns when the government sold PowerSeraya to YTL? 


2. If the government can intervene with MRT and buses, why not Tuasspring?

The intervention into trains is due to the operator's inability to provide the expected level of service, not because SMRT is failing in anyway financially. 

There has not been reports of TS not being able to fulfil its service standard obligations. 


3. Our only hope of recovering our investment is Govt to acquire TS as Strategic National Asset.

The argument here is that 34,000 individuals and their 150,000 household members are negatively impacted by the failure of Hyflux. It is indeed sad that many people lost money investing in Hyflux. But to be able to participate in the capital markets -- and some in a very big way -- I am inclined to think that these people possess not only financial capital, but also some level of intellectual capital. They may be wrong in their assessment of the investment merits of Hyflux, but they cannot be thinking that this is a risk-free product. And so these 34,000 people are not likely to belong to the bottom 20 percentile earners; those receiving workfare, CPF top-ups and bicentennial bonuses. 

Using 'retiree' as a reason to be rescued will only serve to provide the government with more evidence to tighten its grip on CPF usage. Or worse, increase percentage of employee contribution to CPF.

The petition ends by claiming that a government acquisition of Tuaspring at $1.3b is 'not a bailout, but a rightful govt action.' There are many negative implications for such an action, some of which I have mentioned in a previous post. 

Losses are painful. But it is also not fair for all to pay for the mistakes of some. People have to take responsibility for their actions.

[Shiyi]

In a report issued by OCBC Credit Research, it is said that "While the industry and domestic asset HYF operate is strategically important, HYF itself as a company is not."

[valueinvestor]

Even Hyflux goes bankrupt , new owner will buy over the assets and runs as per normal.
Gov is the regulator , not a problem for foreigners to own the assets because the regulator call for the shot .
If Salim , or SMI pays book value or above BV for the assets , will the angry stakeholders remain angry and complain Salim is foreigner ?