Hyflux 6% perpetual callable 2020

[AQ.]

To make it less confusing, perpetual bonds are a special class of bonds. Bonds are typically senior to preferred stock, according to the above investopedia. But the seniority of perpetual bonds, which are not the usual bonds, are defined separately. In this case, I believe the Hyflux perpetual bonds are as senior as the preferred stock.

This may sound academic until crap hits the fan. I think perps though might be classified as equity on accounting balance sheet, will still be deemed as bonds and above pref in terms of seniority of claim

Happy to learn if it is otherwise.

I'm not sure if i follow what is going on. Why is there a link between perpetual bonds, BTWZ (perpetual capital) and N2H (preference shares)?

OIS for the Perp can be found here: http://infopub.sgx.com/FileOpen/Hyflux_L...leID=29202

Best thing to do is to use the search function using "seniority, pari passu, default" etc - it's a long and longwinded document.

1. Page 42 states:

The Securities are structurally subordinated to any and all existing and future liabilities and obligations of the Issuer’s subsidiaries, associated companies and joint ventures. 

Most of the Issuer’s assets are shareholdings (direct and indirect) in its subsidiaries, associated companies and joint ventures. Both the timing and the ability of certain subsidiaries, associated companies and joint ventures to pay dividends may be constrained by applicable laws. In the event that the Issuer’s subsidiaries, associated companies and joint ventures do not pay any dividends or do so irregularly, the Group’s cash flow may be adversely affected. As a result of the holding company structure of the Group, the Securities are structurally subordinated to any and all existing and future liabilities and obligations of the Issuer’s subsidiaries, associated companies and joint ventures. Generally, claims of creditors, including trade creditors, of such companies will have priority with respect to the assets and earnings of such companies over the claims of the Issuer and its creditors, including the Securityholders to the extent that amounts are due and payable under the Securities. For the avoidance of doubt, the Securities will rank pari passu with the S$400,000,000 6.00 per cent. cumulative non-convertible non-voting perpetual Class A preference shares, the S$300,000,000 in aggregate principal amount of 5.75 per cent. perpetual capital securities and the S$175,000,000 in aggregate principal amount of 4.80 per cent. perpetual capital securities issued by the Issuer. The Securities will not be guaranteed. 

2. It seems though that this need not always be the case. (for future issuances, if any)

Pg 64: In these Conditions, “Junior Obligation” means any ordinary shares of the Issuer and any class of the Issuer’s share capital and any other instruments or securities (including without limitation any preference shares, preferred units or subordinated perpetual securities) issued, entered into or guaranteed by the Issuer that ranks or is expressed to rank, whether by its terms or by operation of law, junior to the Securities. => I read this to mean that any future perps or pref can be junior to N2H and BTWZ, so it seems that seniority between perpetual capital and preference shares is not strictly defined unlike that between bonds and common equity.

3. I'm not sure why people link this to a bond? The issue name is Perpetual Capital Securities. 
    When i do a search in the OIS with 197 pages, i find 7 instances of the word bond, out of which 1 relates to chemical bonding, and the rest are used in a generic context of which most appear in the later pages in the instructions on how to apply at the ATM.

[sgdividends]

Thanks AQ for the definitive answer.

That's why they are classified under the equity portion of the balance sheet

[But I don't know how u drew the conclusion that future perps or cps will be ranked junior to the existing one leh..
Edited. Ok u were meaning may or may not..agree]

[gzbkel]

Not sure how accurate, but according to Forbe, Ms Lum has a net worth of 460 M USD in 2011.
Assuming Hyflux common shares is $2 in 2011, her worth now is about 185 M SGD, assuming no change other than the difference in Hyflux common share price. (Not realistic, but I have no other data)

If we take the snapshot of AR2016, her holdings are as follow:


                     Today's price   Holdings          Value (SGD)     % of net worth
Common:       0.37                267,351,211    98,919,948       53
Perp:             0.8                  1,000,000        800,000            0.43
Pref:              93                   8,020              745,860            0.4

[gzbkel]

A few of you have mentioned that failure to redeem or pay dividend on the preference shares/preps will affect Hyflux's chances to get loans. May I know why?

Of course common/preference shareholders will take it badly, and it will be difficult to issue preference shares in future.
But If I am a bank or bondholder, won't it be better for me if Hyflux does not redeem or pay dividend, so that more capital is available for repayment of principle and interest serving?

Maybe I am missing something here, would like to hear your thoughts or insight.

[corydorus]

If Hyflux has problem paying dividends, as a lender, why would you want to lend Hyflux money for as little as 6% returns when you can lose all your capital ? Even 10% may not be enough.

[CY09]

Agree with Cory.

Banks are geared more towards capital preservation. If hyflux is not even able to repay a capital at the end of the term. Banks will not be willing to lend. The exception of course is for hyflux to pledge unencumbered assets as collateral for bank loans

[tanjm]

To make it less confusing, perpetual bonds are a special class of bonds. Bonds are typically senior to preferred stock, according to the above investopedia. But the seniority of perpetual bonds, which are not the usual bonds, are defined separately. In this case, I believe the Hyflux perpetual bonds are as senior as the preferred stock.

This may sound academic until crap hits the fan. I think perps though might be classified as equity on accounting balance sheet, will still be deemed as bonds and above pref in terms of seniority of claim

Happy to learn if it is otherwise.

I'm not sure if i follow what is going on. Why is there a link between perpetual bonds, BTWZ (perpetual capital) and N2H (preference shares)?

OIS for the Perp can be found here: http://infopub.sgx.com/FileOpen/Hyflux_L...leID=29202

Best thing to do is to use the search function using "seniority, pari passu, default" etc - it's a long and longwinded document.

1. Page 42 states:

The Securities are structurally subordinated to any and all existing and future liabilities and obligations of the Issuer’s subsidiaries, associated companies and joint ventures. 

Most of the Issuer’s assets are shareholdings (direct and indirect) in its subsidiaries, associated companies and joint ventures. Both the timing and the ability of certain subsidiaries, associated companies and joint ventures to pay dividends may be constrained by applicable laws. In the event that the Issuer’s subsidiaries, associated companies and joint ventures do not pay any dividends or do so irregularly, the Group’s cash flow may be adversely affected. As a result of the holding company structure of the Group, the Securities are structurally subordinated to any and all existing and future liabilities and obligations of the Issuer’s subsidiaries, associated companies and joint ventures. Generally, claims of creditors, including trade creditors, of such companies will have priority with respect to the assets and earnings of such companies over the claims of the Issuer and its creditors, including the Securityholders to the extent that amounts are due and payable under the Securities. For the avoidance of doubt, the Securities will rank pari passu with the S$400,000,000 6.00 per cent. cumulative non-convertible non-voting perpetual Class A preference shares, the S$300,000,000 in aggregate principal amount of 5.75 per cent. perpetual capital securities and the S$175,000,000 in aggregate principal amount of 4.80 per cent. perpetual capital securities issued by the Issuer. The Securities will not be guaranteed. 

2. It seems though that this need not always be the case. (for future issuances, if any)

Pg 64: In these Conditions, “Junior Obligation” means any ordinary shares of the Issuer and any class of the Issuer’s share capital and any other instruments or securities (including without limitation any preference shares, preferred units or subordinated perpetual securities) issued, entered into or guaranteed by the Issuer that ranks or is expressed to rank, whether by its terms or by operation of law, junior to the Securities. => I read this to mean that any future perps or pref can be junior to N2H and BTWZ, so it seems that seniority between perpetual capital and preference shares is not strictly defined unlike that between bonds and common equity.

3. I'm not sure why people link this to a bond? The issue name is Perpetual Capital Securities. 
    When i do a search in the OIS with 197 pages, i find 7 instances of the word bond, out of which 1 relates to chemical bonding, and the rest are used in a generic context of which most appear in the later pages in the instructions on how to apply at the ATM.

Actually the perp is a bond. One simple way to confirm is to list all retail bonds on the sgx website. The perp is there but not the cps. http://www.sgx.com/wps/portal/sgxweb/hom...BIS9nQSEh/

Normally a preferred share ranks junior to a perp, but in this case Hyflux seems to have confused the issue (FYI all shares and bonds are generically “securities”). Also in the US, tax treatment of income from a bond is different from a share. In accounting, both perp bonds and preferred are treated as equity because the issuer can keep the capital forever. So whether u wanna call it a bond or a equity depends on the point of view you are approaching from. I’m no expert but it is possible one of the anchor investors in the original ipo for the perp may have insisted on this classification due to their home base tax laws.

[corydorus]

To me perpetual bond is still a bond. You need to pay dividends. The difference is that the bond is perpetual and is a DEBT.

Preference Shares is Perpetual. But depending on how it is structure, it can be be cumulative when not paid.
The thing is it can be forever cumulative and investor theoretically may not get a single cents. So technically I think PS is not a debt at all.

I blogged about all this concerns before and lack of experience on how this going to workout. No longer vested.

http://corylogics.blogspot.tw/search/label/Hyflux


Cory

[specuvestor]

To make it less confusing, perpetual bonds are a special class of bonds. Bonds are typically senior to preferred stock, according to the above investopedia. But the seniority of perpetual bonds, which are not the usual bonds, are defined separately. In this case, I believe the Hyflux perpetual bonds are as senior as the preferred stock.

This may sound academic until crap hits the fan. I think perps though might be classified as equity on accounting balance sheet, will still be deemed as bonds and above pref in terms of seniority of claim

Happy to learn if it is otherwise.

I'm not sure if i follow what is going on. Why is there a link between perpetual bonds, BTWZ (perpetual capital) and N2H (preference shares)?

OIS for the Perp can be found here: http://infopub.sgx.com/FileOpen/Hyflux_L...leID=29202

Best thing to do is to use the search function using "seniority, pari passu, default" etc - it's a long and longwinded document.

1. Page 42 states:

The Securities are structurally subordinated to any and all existing and future liabilities and obligations of the Issuer’s subsidiaries, associated companies and joint ventures. 

Most of the Issuer’s assets are shareholdings (direct and indirect) in its subsidiaries, associated companies and joint ventures. Both the timing and the ability of certain subsidiaries, associated companies and joint ventures to pay dividends may be constrained by applicable laws. In the event that the Issuer’s subsidiaries, associated companies and joint ventures do not pay any dividends or do so irregularly, the Group’s cash flow may be adversely affected. As a result of the holding company structure of the Group, the Securities are structurally subordinated to any and all existing and future liabilities and obligations of the Issuer’s subsidiaries, associated companies and joint ventures. Generally, claims of creditors, including trade creditors, of such companies will have priority with respect to the assets and earnings of such companies over the claims of the Issuer and its creditors, including the Securityholders to the extent that amounts are due and payable under the Securities. For the avoidance of doubt, the Securities will rank pari passu with the S$400,000,000 6.00 per cent. cumulative non-convertible non-voting perpetual Class A preference shares, the S$300,000,000 in aggregate principal amount of 5.75 per cent. perpetual capital securities and the S$175,000,000 in aggregate principal amount of 4.80 per cent. perpetual capital securities issued by the Issuer. The Securities will not be guaranteed. 

2. It seems though that this need not always be the case. (for future issuances, if any)

Pg 64: In these Conditions, “Junior Obligation” means any ordinary shares of the Issuer and any class of the Issuer’s share capital and any other instruments or securities (including without limitation any preference shares, preferred units or subordinated perpetual securities) issued, entered into or guaranteed by the Issuer that ranks or is expressed to rank, whether by its terms or by operation of law, junior to the Securities. => I read this to mean that any future perps or pref can be junior to N2H and BTWZ, so it seems that seniority between perpetual capital and preference shares is not strictly defined unlike that between bonds and common equity.

3. I'm not sure why people link this to a bond? The issue name is Perpetual Capital Securities. 
    When i do a search in the OIS with 197 pages, i find 7 instances of the word bond, out of which 1 relates to chemical bonding, and the rest are used in a generic context of which most appear in the later pages in the instructions on how to apply at the ATM.

Actually the perp is a bond. One simple way to confirm is to list all retail bonds on the sgx website. The perp is there but not the cps. http://www.sgx.com/wps/portal/sgxweb/hom...BIS9nQSEh/

Normally a preferred share ranks junior to a perp, but in this case Hyflux seems to have confused the issue (FYI all shares and bonds are generically “securities”). Also in the US, tax treatment of income from a bond is different from a share. In accounting, both perp bonds and preferred are treated as equity because the issuer can keep the capital forever. So whether u wanna call it a bond or a equity depends on the point of view you are approaching from. I’m no expert but it is possible one of the anchor investors in the original ipo for the perp may have insisted on this classification due to their home base tax laws.

I've checked with the bonds guy and what AQ and tanjm stated is correct. They are pari passu as stated in the offering document which is bit unique

Thanks for the education in this thread. Hyflux is more complicated than when I met them 10 years ago when they supposedly focus on China projects. Since then I've not spent time on it.

https://www.valuebuddies.com/thread-810-...#pid133057

[AQ.]

Interesting stuff.

BTWZ is now @ 0.71 - i have started buying some this mng.

Price has fallen from 0.89 from the start of this thread i.e. 20% fall in ~2mths.

I still think Hyflux is likely to not call N2H, but continue paying coupons.

flat yield for BTWZ for next 2yrs is 0.06/0.71=8.45%, stepping up to >10% (looking @ where 4y SOR is now). 

decent levels for a measured sized bet.

dyodd.