Hyflux

[weijian]

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

White knights do come at a price, i reckon. My guess is that Salim wants to (1) have a controlling stake to make decisions at the Board level (eg. change Mgt as AQ suggested) and (2) enjoy any future potential upside as equity. Actually most white knights would prefer convertible bonds which has optionality - cap the downside with potential upside. So, it could be a case where Salim really regard Kak Olivia/Hyflux has just caught a cold and there are alot of synergies to allow a better future. But Activist Speaks has simply called the bluff early on - Without massive write-offs, the business is not viable anymore.

After reading through all the informative posts by VBs thus far, personally I learnt 2 broad lessons, both in regards to "structure":

(1) In theory, there seems to be no difference between a strategic asset, and the company that owns the strategic asset. In practice, there is.

(2) Preference Share/Perpertuals are equity-like debt but to the investor, they are actually asymmetric bets. In normal times, they enjoy debt-like protection and higher coupon rates than equity. But as like all things, the ultimate test comes when things are not going well. End of the day, such equity-like debt do not enjoy the upside like equity, but is treated like equity in the downside. A classic case of "heads i don't win, tails i lose".

[karlmarx]

PCS and CPS holders could demand for their securities to 'remain on the books.' But that 'book' would not be worth much because nobody wants to buy that 'book' with the PCS and CPS on it. The options available are only to accept what has been laid out in the restructuring, or risk uncertain terms in a liquidation. It has been mentioned that PUB will acquire TS in a liquidation.

I wouldn't say that Hyflux PCS and CPS are an 'asymmetrical bet (high loss probability, or small gains but high risk).' The senior creditors made the bet on Hyflux on similar, if not slightly better, terms. Yet, we do not see financial institutions/banks retreat from such lending; it is their bread and butter. The senior creditors are less affected by the default not because their recovery rate is higher, but because their loan portfolio is much more diversified. They do so because they know they can lose a lot if their debtor fail.

If USEP maintained at the level when Hyflux bid for TS, PCS and CPS buyers would probably be giving high-fives to each other on what they will say is a low loss probability bet.

Or, if a credit event did not occur, and senior creditors continued to rollover debts and/or lend more working capital, the PCS and CPS would have likely 'remained on the books,' albeit maybe not receiving any coupons. If only there was a party willing to provide Hyflux with working capital, until USEP recovered. That would then have made Tuaspring more attractive to buyers.

[weijian]

@karlmarx,
To clarify, when i talked about the asymmetric bet in my previous post, it wasn't referring to specific Hyflux PCS/CPS bets. It was simply referring to the structure of preference/perpetuals as a equity/bond hybrid in general.

As you mentioned, it could have gone both ways. Commenting that it is a asymmetric bet now, would have been hindsight bias at best. The interest rates then were low and so the 5-6% interest rates were considered high. But then again, the investor then could rationalize that the risk was indeed higher because their money was going into project financing, which generally has higher risk. So it was appropriate to enjoy higher gains since the risk was higher too. So end of the day, if the investor had structured this investment similar to that of the banks (ie. asset allocation portion) appropriately, this isn't much one can do and this is just part and parcel of investing (ie. we have capital gains and losses).

[corydorus]

To be fair, when they split out the company Hyfluxshop , this should not be allowed when they have PS issued where credibility is based on Hyflux value. I wonder is this legal ? If so, this put entire future issue of Preference shares practices into question for other companies.

[Behappyalways]

Hyflux - A bet gone wrong
https://srsfund.blogspot.com/2019/02/hyf...wrong.html


http://investideas.net/forum/viewtopic.p...&start=170

If there are already signs of problem in the company highlighted by outsiders a few years back, shouldn't the management have a better gauge on the status of the company?

To do a distribution in specie before the collapse...….do you think it is questionable???

[davidoh]

Perspective.

I have no vested interest in Hyflux, though at one point, I did think of buying.

Government mouth piece made an issue of OL being paying herself despite profitability issues. Then we need to ask similar questions about eg NOL suffered heavy loses each and every single year, yet, NOL CEO LG (NS) Ng Yat Chung has been earning at least S$16 million since he took over as CEO in 2011. Looking through the annual reports (https://www.nol.com.sg/wps/portal/nol/in...ualreports), it was revealed that LG (NS) Ng earned at least US$2 million a year.

I am not justifying OL's salary, she was still working for the company, except perhaps bad decisions along the way.

[Shiyi]

Perspective.

I have no vested interest in Hyflux, though at one point, I did think of buying.

Government mouth piece made an issue of OL being paying herself despite profitability issues. Then we need to ask similar questions about eg NOL suffered heavy loses each and every single year, yet, NOL CEO LG (NS) Ng Yat Chung has been earning at least S$16 million since he took over as CEO in 2011. Looking through the annual reports (https://www.nol.com.sg/wps/portal/nol/in...ualreports), it was revealed that LG (NS) Ng earned at least US$2 million a year.

I am not justifying OL's salary, she was still working for the company, except perhaps bad decisions along the way.

Quite a stretch to compare Hyflux with NOL.
NOL was privatised and shareholders got their money back, albeit at a loss for some.

To be fair to the "Government mouth piece" , the issue of OL remuneration was raised by SIAS and not the media.

[touzi]

OL is the largest shareholder of Hyflux. Ng Yat Chung is a hire gun. I think the question raised by SIAS is valid though I still have a lot of respect for OL, the entrepreneur. Hope she will bounce back somebody.

[LionFlyer]

touzi
OL is the largest shareholder of Hyflux. Ng Yat Chung is a hire gun. I think the question raised by SIAS is valid though I still have a lot of respect for OL, the entrepreneur. Hope she will bounce back somebody.

The horse has bolted.

[AQ.]

Hyflux has released affidavit, and for the first time, pro-forma restructured B/S + P&L for 1st 9mths 2018.

https://www.hyflux.com/wp-content/upload...h-2019.pdf

Nothing out of the blue really.

1. Total impairment expected ~ 916mio, spread across TS+ receivables for previously completed projects - i suppose this refers to the projects in Algeria.

2. TS reported loss of 70mio for 9m18 => full yr losses ~ 93mio. Av USEP for 9m18 is 105.
    For FY17, TS losses = 82mio for ave USEP 81
    For FY16, TS losses = 114mio for ave USEP 63
  
    I will hv thought accounting losses for TS to narrow on higher USEP but it doesnt matter post restructuring - impairment to book means amortisation changes massively and a lot also depends on Maybank refinancing.

3. Post restructuring, Group Equity 1112mio, Debt 733mio (i.e. SM's 130mio and remaining Maybank), with total no shares 19632mio.
    Group NTA 4.2c with gearing 70%

    Given SM's 400mio for 60% equity, they are effectively paying 400/0.6*19632=3.4c/ share