Hyflux 6% perpetual callable 2020

[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.

[tanjm]

If you notice on hyflux balance sheet, there is a billion close of financial receivables. Most of it are what is owed to them by govt (e.g. Singapore and municipal towns of China).

Some may argue that means good chance of getting them, while some will argue it is ticking time bomb

I wouldnt worry too much abt that stuff - the elephant in the room is more likely the >1bio of intangibles due to the SCAs from TuasSpring agst equity of 1.5bio.

Anyway, truth will be unveiled soon with the sale of TuasSpring - how much confidence does the buyer have in this modelling over 25yrs esp with spark spreads now?

In AR16 Pg101-102:

The segregation of the consideration between the financial receivables and intangible assets, if any, requires
the Group to make an estimate of a number of factors, which include, inter alia, fair value of the construction
services, expected water and wastewater volume and supply of electricity over its service concession period,
guaranteed and unguaranteed amounts, as well as choosing a suitable discount rate to calculate the present
value of those cash flows.

The key assumptions which the Group had adopted in its determination of the recoverable amount of its

intangible assets arising from service consession arrangement include pre-tax discount rate, spark spread over
the duration of the service concession period; and long term utilisation rate of the desalination plant and power
generation facility.

Sensitivity analysis
A 1% downward revision of the pre-tax discount rate, spark spread or utilisation rate of the power generation
facility as at 31 December 2016 would have decreased profit before income tax in profit or loss $8.6mio  (I have edited this part to be readable)

Estimating the value
in use requires the Group to make an estimate of the expected future cash flows from the intangible assets and
also to choose a suitable discount rate in order to calculate the present value of those cash flows. Significant
changes to the expected future cash flows and discount rate could impact the recoverable amounts of the
intangible assets.

http://www.greensingapore.com/news/11730...ew-players

[url=http://www.greensingapore.com/news/1173008/big-boys-in-power-market-being-zapped-by-new-players][/url]If I read this right, Hyflux recent woes are due to intense competition for market share prior to the opening up of Singapore’s electricity market. In the long run, efficiency matters, and I’m guessing, as a new entrant, they are relatively efficient.

Infrastructure players will take this into account. As well as global yield environment which are encouraging a chase for stable yield.

[Layman A]

For the benefit of layman like me, can some kind soul please enlighten me :

Which one rank more senior

Hyflux 6% CPS ?

or  

Hyflux 6% perp cap sec. ?

[sgdividends]

No one knows. As of now, it seems the same though the naming is different .

A rose is still a rose regardless of the name.

[sgdividends]

Not sure why.

When I glanced at darco, Citic environtech...

Darco cashflow from operations quite similar to hyflux but Citic cashflow from ops is strangely positive and very high.

Darco is a Singaporean company ( correct me if I'm wrong ) as with hyflux, in terms of the chairman and CEO.

Citic isn't .

[Layman A]

Thank you sgdividends.

So both are perpetual securities ( or perpetual bond ) with no DUE date, correct ?

I have some more doubts need clarification :

So come April 2018 when the call date of Hyflux 6% CPS ( Cummulative Preference Share ) is reached and Hyflux decided NOT to redeem the CPS but continue to pay the dividend, it will be a non event right ?  
(Unlike true BOND when they fail to redeem on the DUE date, it is considered a DEFAULT , and will cause a big problem.  )

The only difference that they will have to pay 8% interest going forward ,instead of the existing 6% right ?

And after the call date , if Hyflux manage to find the cash to redeem the 6% CPS , they can call it anytime right ?
( Presume they manage to find a buyer for the Tuas Spring )

Sorry to ask so many question.

[sgdividends]

Yes
Yes
Yes

I'm not an expert but that's my understanding

[wonghw12]

Note that Hyflux can also choose not to pay any dividend on the preference share and it won't constitute a default.

Comparing the preference share vs the perpetual bond, it does seem that the perpetual bond is more protected with a dividend pusher, in addition to the reset feature. Perpetual bondholders should be paid the coupon (that falls within 6mths) as the preference shareholders were paid dividends in Oct 2017. However, this protection may be moot if dividends to both common equity and preference shares are stopped.

[tanjm]

Note that Hyflux can also choose not to pay any dividend on the preference share and it won't constitute a default.

Comparing the preference share vs the perpetual bond, it does seem that the perpetual bond is more protected with a dividend pusher, in addition to the reset feature. Perpetual bondholders should be paid the coupon (that falls within 6mths) as the preference shareholders were paid dividends in Oct 2017. However, this protection may be moot if dividends to both common equity and preference shares are stopped.

Hyflux has a strong disincentive to not pay. So it would have to be a pretty serious financial crisis for it to not pay.

Hyflux is prevented from paying dividends on its common shares or buying them back until it pays off the deferred dividends. The deferred dividends will continue to cumulate to the capital, compounding the interest until it resumes payments. Finally, its own common share price will probably tank.

[CY09]

Like most assets, the underlying value of a share (ordinary share) is due to the cash flow it brings to its owner.

If hyflux stops pref shares and perpetuals payments, interest will be cumulative and the future redemption will be heavy. Coupled with the punishing interest of 8+%, it is a very high possibility that there will be no value for ordinary shareholders. As of now, the equity due to ordinary shareholders is less than 400 mil, while the value of Hyflux's assets on the books is $3.5 billion. It can be easily wiped out with hefty interest repayment. Furthermore, ordinary shareholders will only see dividends after shareholders before them are paid. Hence should pref/prep dividends be stopped, imo the value of the ordinary shares are likely to be 0 to 0.1 cents.

To Ms Olivia Lum, it will probably mean the wiping out of a significant part of her net worth

This is probably why many people have the view that owning the preference share/perpetuals is better than ordinary shares