Hyflux

[Thriftville]

I think Hyflux may consider offering another $400m of preference at 6%. Then use the money for redemption?

Hyflux net profit margin is about 10%. So I guess they are still able to squeeze out some money to pay off pref shareholders.

What you propose sounds a lot like EUNetworks (former Global Voice), which have issued new bonds to redeem old ones, and essentially not eliminating the problem of paying a high coupon rate on its existing debt/preference shares.

And we should also not confuse profits with cash. A profit margin of 10% may also not be consistent depending on the nature and type of project, and cash flows may be erratic due to the nature of Hyflux's business.

To add on to what dydx has said, the $400 million will be hard to come by for Hyflux unless they have positive FCF for the 6 years after the issuance of their CPS. Even then, they would most likely pay down their debt first (i.e. bank loans) rather than reserve money to specifically pay off the CPS. If they can lower their gearing and improve their BS, then banks would be more willing to roll over their loans and/or lend them more money.

Oh i see... Just wondering if Hyflux defaults on payment for CPS, would that affects its credit rating? If the rating is down, then would banks be willing to lend extra money to Hyflux?

[freedom]

how to default?

it is perpetual. and dividends is cumilative.

[Thriftville]

how to default?

it is perpetual. and dividends is cumilative.

Oops! i mean fail to pay for 1 year for example.

[freedom]

how to default?

it is perpetual. and dividends is cumilative.

Oops! i mean fail to pay for 1 year for example.

fail to pay, will be paid later. not default

[Thriftville]

how to default?

it is perpetual. and dividends is cumilative.

Oops! i mean fail to pay for 1 year for example.

fail to pay, will be paid later. not default

Thanks for clarifying! Would credit rating of Hyflux will be affected, if it doesnt pay Preference share any dividend for a few years?

[freedom]

that's for sure. even not pay once, its credit rating will be affected.

they will try their best to pay pref dividends, so common share holders are not in good position.

[Musicwhiz]

I think it should be clarified that if Hyflux defaults on the CPS dividend payments, then it is most likely because they do not have the cash flows to make the payments. In such cases, even bondholders and banks who granted them term loans will suffer a default in interest payments. Let's not even talk about dividends to ordinary shareholders - these are the last in line to receive anything should the company run into cash flow problems.

That said, it is impossible to project 5 years into the future to see if Hyflux can continue to maintain dividends on CPS. In view of their business model and high capex requirements, I will give this a pass.

[corydorus]

Having said all the Risks/Gains, has there been real examples of Cumulative Preference Shares that failed in other countries that is of low rating ?


Cory

[piggo]

How will their rating be affected if they don't pay? Unlike bonds, they are under no obligation to not let the dividends accumulate. They are also under no obligations to call at any specific date

[Musicwhiz]

How will their rating be affected if they don't pay? Unlike bonds, they are under no obligation to not let the dividends accumulate. They are also under no obligations to call at any specific date

Banks are very pragmatic institutions and if you cannot pay, they will scrutinize your latest audit report to see why not. Assuming your cash flow has issues or some projects have been delayed, this also results in reputational risks. The bank, in order to mitigate its own risks, can choose either to grant a smaller quantum of loan, and at higher rates, or simply refuse to roll over existing loans.

There are many possibilities, and none of them are very pleasant or advantageous to the Company in question.