Hyflux

[AQ.]

5Mar19 - PUB serves notice on TS
5Apr19 - deadline for TS defect rectifications
5Apr19 - SOA
30Apr19 - end of court protection for Hyflux

The coincidence of dates for deadline of rectification+SOA suggests this is PUB's reminder to all voters @ SOA - there's no alternatives. In the event there is, there is also no time.

There's prob no way Hyflux can rectify TS given cash burn+no more credit available, so on the day SOA fails, PUB will serve notice and seize TS. SM will walk since its interest is gone, and liquidation commences after 30Apr when court protection ends.

[donmihaihai]

PUB serves default notice to Hyflux Tuas Spring.

From Day one, people has been saying that the gov can just seize it for national security reason if the contract is not fulfilled. This mean Hyflux loses the rights of use to benefit from it. Trying to invest in something that is critical to national security assuming gov will not let is fail is hallucinate investing.


.

Anybody knows if MayBank has the first claim of the plant or the Govt?
Does PUB have to pay for the plant if it is "seized"?

PUB is doing its job. Depend on how the agreement being worded but the majority cost of constructing Tuaspring has not been paid.

[Shiyi]

It's a Built-Operate-Transfer project. Hence, under normal circumstances, PUB need not pay anything upon expiry of the 25-year concession. But in the event of default, I'm not sure how the settlement will be. Maybe those who are in the know can enlighten?

[AQ.]

SOA terms have been amended after the Senior unsecured agreed to some of the SIAS proposals. All changes relate to the cash portion of the amt reserved for extinguishing contingent claims i.e. equity portion does not change.

1. Mgmt Payout will reduce from 20% to 10% 
2. PnP will get the pro-rata proportion of the remaining 90% cash in escrow, pending actual extinguishing.

Calculations are complicated by the fact that total claims are now 3.5bio, i/o 2.9bio. Some of the delta is from the accrued interests (e.g. PnP is now 970mio i/o 900mio) but there is also a very large claim of 500mio made by Magtaa (vs 135mio previously estimated)

In short:
Initially PnP gets 10.6% recovery, while Banks+MTN gets 24.6-38.2%
Now     PnP gets 10.6-15.1% recovery while Banks+MTN gets 24.6-35.9%

By and large the figures look better optically, but realistically i find it hard to believe a large majority of contingent claims can be fully extinguished i.e. there's prob just ~2c of upside for the PnP. 
SIAS should be given credit for eventually having a voice.


Below are calculations:

Initially PnP get 27mio cash + 10.26% NewCo i.e. recovery of ~(27+68.4)/900= 10.6%
Unsecured get 232mio cash + 27% NewCo of which
banks+mtn get 137.3mio cash + 106.6mio equity i.e. min recovery of (137.3+106.6)/988= 24.6%
and the rest in escrow (i.e. 94.7mio cash + 73.5mio equity) thus best case recovery of 38.2% with full 80% escrow

Now, mgmt gets 10% of escrow, and the balance 90% of cash escrow to be distributed pro-rata
The min recovery case still remains, and the best case is as follows (i.e. all contingent extinguished)

For PnP, 27mio+ 0.9*94.7/(900/900+988) = 67.6mio cash + 68.4mio equity = best case ~ 15.1% recovery i.e. 7.5% cash + 7.6% equity
For banks+mtn, 
best case scenario cash = 137.3mio + 0.9*94.7/(988/900+988) = 137.3+44.6 = 181.9mio cash 
best case scenario equity = 106.6+0.9*73.5 =172.75mio equity
Thus best case recovery = 35.9%

[MOV]

https://www.bloomberg.com/news/articles/...-investors

Quote from article:
“What they are offering to us is simply ridiculous,” said Christopher Ching, a construction industry consultant who bought S$250,000 of senior notes from the secondary market in late 2017. While he stands to recoup a higher percentage than the junior creditors, he’s prepared to fight with them for a better deal. “We might as well go down together.”

Looks like the scheme may not be able to go through if more disgruntled noteholders think this way....

Tomorrow's meeting rescheduled... for more space..

[opmi]

I am surprised no one pulled out the mis-selling card. Like GFC's Minibonds by HL Finance, which fully compensated every investor.

[Behappyalways]

Hyflux raised $400 million from perpetual preference shares in 2011 and $475 million in perpetual capital securities in 2014. These instruments carry a cumulative dividend of 6% a year and would be classified as financial liabilities — but for the company’s right to defer the cash payments indefinitely. Under FRS 32, this unconditional right allows the instruments to instead be presented as equity.

Such financial engineering means the company was able to remove the “dividends” as opposed to “interest payments” from its profit-and-loss statement, thereby giving the illusion of higher profits.

For instance, the company paid dividends on both perpetual securities totalling $269.8 million between 2011 and 2017. If the dividends were interest payments, the reported pre-tax profit totalling $156.1 million for the entire period would turn into a loss of $113.7 million.

Total compliance in financial reporting, but was it misleading?
https://www.theedgesingapore.com/portfol...misleading

[weijian]

Hyflux raised $400 million from perpetual preference shares in 2011 and $475 million in perpetual capital securities in 2014. These instruments carry a cumulative dividend of 6% a year and would be classified as financial liabilities — but for the company’s right to defer the cash payments indefinitely. Under FRS 32, this unconditional right allows the instruments to instead be presented as equity.

Such financial engineering means the company was able to remove the “dividends” as opposed to “interest payments” from its profit-and-loss statement, thereby giving the illusion of higher profits.

For instance, the company paid dividends on both perpetual securities totalling $269.8 million between 2011 and 2017. If the dividends were interest payments, the reported pre-tax profit totalling $156.1 million for the entire period would turn into a loss of $113.7 million.

Total compliance in financial reporting, but was it misleading?
https://www.theedgesingapore.com/portfol...misleading

hi Behappyalways,
I vaguely remember you said this before and i managed to dig it out: https://www.valuebuddies.com/thread-810-...#pid147390. 

But i didn't pay much attention then. I took a look at another perpetual issuer Sembcorp, and indeed based on its AR17, it is evidently clear that the "interest costs" of the perpetuals are not included in the financing costs under the P/L.
Sembcorp AR17 http://www.sembcorp.com/en/media/514213/...report.pdf (page40)

Thanks for sharing Tong's article (Tong is pretty legendary in Msia for straddling both sides of the political divide and paying 2mil USD to the 1MDB whistleblower) and it is good knowledge to drill into the head.

[Shiyi]

Hyflux raised $400 million from perpetual preference shares in 2011 and $475 million in perpetual capital securities in 2014. These instruments carry a cumulative dividend of 6% a year and would be classified as financial liabilities — but for the company’s right to defer the cash payments indefinitely. Under FRS 32, this unconditional right allows the instruments to instead be presented as equity.

Such financial engineering means the company was able to remove the “dividends” as opposed to “interest payments” from its profit-and-loss statement, thereby giving the illusion of higher profits.

For instance, the company paid dividends on both perpetual securities totalling $269.8 million between 2011 and 2017. If the dividends were interest payments, the reported pre-tax profit totalling $156.1 million for the entire period would turn into a loss of $113.7 million.

Total compliance in financial reporting, but was it misleading?
https://www.theedgesingapore.com/portfol...misleading

hi Behappyalways,
I vaguely remember you said this before and i managed to dig it out: https://www.valuebuddies.com/thread-810-...#pid147390. 

But i didn't pay much attention then. I took a look at another perpetual issuer Sembcorp, and indeed based on its AR17, it is evidently clear that the "interest costs" of the perpetuals are not included in the financing costs under the P/L.
Sembcorp AR17 http://www.sembcorp.com/en/media/514213/...report.pdf (page40)

Thanks for sharing Tong's article (Tong is pretty legendary in Msia for straddling both sides of the political divide and paying 2mil USD to the 1MDB whistleblower) and it is good knowledge to drill into the head.

[Shiyi]

Can any accountant enlighten me the following:
1. How are dividend expenses reflected in the P&L statement?
2. Is there any difference between financial cost and interest expenses? e.g. in the latest Oxley results, financial cost in the P/L statement is $26,909 while interest expenses in Cash Flow statement is $27,415k