Saturday, October 20, 2018

My layman views on so called " white knights" of Hyflux


Disclaimer: I am not an investment advisor. Heck, i am not even working in the financial industry. Below are my interpretation and i am grateful if you will let me know if anything i say is wrong and i will correct it in a reasonable time. I am not an expert and don't wish to be assumed to be one. I make losses frequently.
Overview
To summarise the major developments that rocked the world of only Hyflux stakeholders recently:

 1) News mentioning that Hyflux received only one final bid for Tuaspring by a local company, Sembcorp which is not even enough to pay back the loan by Maybank. Since the loan by Maybank is in the range of $500 - $600, we know the upper bound of the bid. Many stakeholders are rightfully disappointed or angry that the market price of the bid is so low and naturally attributed this to non-market forces . The hindrance of PUB which only approved 2 local companies. 

2) The most recent news that an Indonesian consortium led by Salim and Medco group are interested in Hyflux. 
In short, with conditions being fulfilled,  they would pump in $400 million to own 60%  of Hyflux, shareholder's loan $130 million to Hyflux and before completion of the deal ,loan of $30 million as working capital rescue financing.


One of the conditions before the $400 million and $130  million pumped in is that there will be a full and final settlement of  notably the MTNs, Perps ( BTWZ) and the Pref (N2H). It was also mentioned in the picture above under point 4.2 that " a proportion of new shares would be issued to certain creditors"



My layman view

1)Is this Indonesian consortium deal better off than Sembcorps bid of only Tuaspring which is below Maybank's outstanding loan as stated in the media? The exact amount of Sembcorp's bid is not revealed publicly. However, a good guesstimate could be gleaned from a CIMB report on 30 Aug 2018.


Hyflux's outstanding loan to Maybank as of End-June 2018 = SGD$658.6 million
Maybank's loan provisioning = SGD$106.3 million
Guesstimate of Sembcorp's bid = SGD$552.3 million

If 60% gets $400 million of Hyflux based on the consortium's offer, 100% of Hyflux will be $667 million. 

If Tuaspring is bidded for $552.3  million by Sembcorp ( this amount is just speculation ) which if we use as a guage for it's market value, wouldn't it mean the Indonesian consortium valued the rest of Hyflux's assets ( Tianjing Dagang, Qurayat, Tuasone, Associated and JVs) at $667 - $552=$115 million?

2) Let's see from the position of MTNs, Perps (BTWZ) and Pref(N2H). 

If Tuaspring is sold to Sembcorp and the money is paid back to Maybank and no further claims from Maybank. Hyflux's noose is gone and Hyflux should return to some profitability, possibly slowly returning the debts to its creditors. At least there is no known " full and final settlement" condition set.

However, if it is based on the Indonesian consortium's bid, and with the "full and final settlement" condition, it seems to me that if we would take the $400+$130-$30 = $500 million proceeds earmarked( worse case scenario, assuming no further top-ups from financing, further rights) that is going to be shared with the various creditors, it would be a massive, massive capital loss .  The point 4.2, "proportion of new shares given to certain creditors" isn't going to be much also, since the new shares will be a proportion of the 40% of Hyflux, which amounts to $267 million market price based on the Indonesian consortium's bid.

So from my layman point of view, without further details and based on just assuming $500 million is all there is to be shared among the creditors plus some shares, out of the 40%, thrown in, i think it sucks.

3) How about from the position of the BOD ?

It would be far harder to keep Hyflux going if Sembcorp's bid ( based on only on news) is accepted instead of the Indonesian's bid.  
Remaining in control is not valuable if the business environment is hard( considering a large bulk is in Middle East ) and needing to pay back the remaining MTNs, Prefs and perps. If Hyflux fails, salary is gone, shares is completely worthless. To pull through, BOD needs to work harder to get business. 

It would be so much easier to accept the Indonesian consortium's offer, even at the expense of losing control. Indonesian can be the new market for Hyflux and that market is huge. With the consortium's backing and connections, the sky is the limit. I mean i would rather be a small fish in a big pond than a big fish in a small pond. Besides, i get to get my salary and my shares should recover, given such strong partners AND the balance sheet is wiped clean. And i would be given some Management Retention Shares some more.

Conclusion

Of course it is a happy day for certain people. But it isn't a happy day for the many others who invested their retirement funds, child education funds or CPF.  A flu really trivializes the issue here and it is not a cold to many of us. It is years of toil, sweat and hardwork to earn those money that we placed into Hyflux. What about the statement :" I am still young and i will work hard for you" said during the Townhall? Is this, the easy way out, leaving the unsophisticated, helpless ones behind?

Further reading
1) Considerations about Hyflux
2) The fate of Hyflux
3)Will Hyflux recover? The billion dollar question
4) Hyflux-Treatmeat of perpetual share holders- Ezion
5) Hyflux - loans and borrowings - Pacific Radiance
6)A happy ending for retail perpertual securities holders - Tiger Air and Hyflux
7) The Very Curious Case of Sharebuybacks- Hyflux
8)What did the founder/Chairwoman/CEO do to help hyflux throughout the years
9) Moving forwards at the Townhall meetings with Hyflux - Part 1
10) Moving forward at the Townhall meeting with Hyflux - Part 2
11)The Lucky Accredited Investors of Hyflux's Perpetual Securities - Part 3
12) The Peculiar Case of HyfluxShop - Question 12 
13)Uncovering the Real Motivations Behind the HyfluxShop 
14) High Level Staff Movement Indication of Red Flags -Hyflux
15)An industry comparison of Hyflux compared with its peers - Question 15
16)What other Water Companies did that Hyflux didn't - Question 16
17)Why a debt to equity option for retail investors is not right
18) Consolidated Questions For Hyflux Townhall Meeting on 19 and 20 July 2018 - Hyflux
19)Consolidated Questions For Hyflux Townhall Meeting on 19 and 20 July 2018 - Hyflux- continued
20)Informal Steering Committee for the Reorganisation Process - Hyflux
21) What happened to other Debt Restructuring Exercises - Ausgroup
22)What happened to other Debt Restructuring Exercises - Nam Cheong

Wednesday, August 8, 2018

What happened to other Debt Restructuring Exercises - Nam Cheong

Nam Cheong is in the business of shipbuilding and vessel chartering. Its business was affected by the oil price environment leading to the oversupply of newly built offshore supply vessels by competitors and lower demand of its vessels.

Disclaimer: I am not an investment advisor. Heck, i am not even working in the financial industry. Below are my interpretation and i am grateful if you will let me know if anything i say is wrong and i will correct it in a reasonable time. I am not an expert and don't wish to be assumed to be one. I make losses frequently.

The journey of the MTNs holders, comprising of  $90 million 5% due 2017, $200 million 5.05% due 2019 and $75 million 6.50% due 2018

Jan 2017 to March 2017 - Resignation of CFO and CEO sold shares

March 2017 - Auditor flagged that as of 31 December 2016, the Group’s loans and borrowings that were classified as current amounted to RM948,720,000 of which RM278,566,000 (S$90 million) pertained to medium term notes that are due for repayment on 28 August 2017. These amounts exceeded the Group’s cash and cash equivalents of RM162,618,000 as at 31 December 2016.

July 2017 - Informal noteholder meeting held. The following was mentioned:
  • All unsecured lenders ( banks and noteholders) will be treated equally.
  • Possible support from major shareholder through dilution of shareholdings and injecting of funds.
  • Secured assets to be sold (if applicable) and repaid to the secured creditors. 
  • Secured debts which are not represented by the value of the secured assets will be settled pari-passu with unsecured debts 
  • All unsecured debts will be treated equally under the Schemes of Arrangement of the Company and its subsidiaries (“Scheme Companies”)
May 2017 - The quarterly financial statement ended 31 March 2017 showed a positive equity of  RM 1,311 million

August 2017 - The financial statement ended 30 June 2017 showed negative equity of RM 700 million

As part of the management comments about total assets: 
Total assets of the Group decreased by RM2.36 billion from RM4.10 billion as at 31 December 2016 ("FY2016") to RM1.74 billion as at 30 June 2017 ("PE2017") mainly due to assets impairment and written down of RM2.0 billion mentioned above.
September 2017 - 2nd informal noteholder meeting held.  It was announced that a rights issuance will be conducted with the chairman committing USD11 million to subscribe for it. There was a choice for noteholders who refused the base scheme to opt for either option A or option B.

Base scheme ( simplified) -
35% of principal to be converted to equity at a rate of (estimated)SGD $0.08 per share. ( USD1 for 17 shares).
65% of principal will be converted to a 7 year term loan at 4% pa, where the interest of 4% is partly paid in shares and cash. Based on the current price of SGD$0.02 since suspension, estimated recovery represents about 73.6% of principal.

Instead of the 65% of principal converted to a 7 year term loan, , noteholders can choose the following:
Option A ( simplified)- Rights will be issued to current shareholders,part of the proceeds will be used to pay those who chose this option. Estimated recovery from this will be 13.5% - 23.5% of principal.  No further claims.
Option B (simplified) - total conversion to equity at USD 1 for 34 shares. Estimated at SGD$0.041 per share. No further claims. This represents an estimated recovery of 41% of principal.

The chairman also commited not to sell his shares for 7 years and his entitled rights for 1 year.
Among which, a management incentive plan was in place that focused on meeting cashflow targets. 

October 2017 - 6 months court moratorium filed. Court proceedings were also filed in Malaysia

Dec 2017 - A FAQ to clarify the restructuring terms was issued. (The terms must be changed between Sep and Dec as the new terms are much improved).

Base scheme ( simplified) - 35% of principal to be converted to equity at a rate of (estimated)SGD $0.047 per share. ( USD1 for 30 shares). 65% of principal will be converted to a 7 year term loan at 4% pa, where the interest of 4% is partly paid in shares(2%) and cash(2%). The 2% interest will be converted at a rate of USD1 for 30 shares.
Option A ( simplified) - seems to stay the same
Option B (simplified) - I didn't see any mention.

It was mentioned that if the MTN chose the liquidation route, they would get not more than $15k for their investment of $250k.

Through the restructured deal, the chairman who is the major shareholder would stand to dilute up to 68% of this shareholding.

It was further mentioned that the rights issuance pricing would be at a price of $0.014 per share , a 30% discount to the suspended traded price of $0.02 per share. The USD11 million which the chairman committed will be used to subscribe for these discounted shares ( $0.014 per share). This USD11 million will be conditional upon the restructuring being agreed upon by the creditors.

My thoughts about its relation to Hyflux

Nam Cheong is an example where rights can still be issued when a company has negative equity. It's suspended share price is $0.02 which is also very low. What this means to me is that there is no excuse for Hyflux not to issue rights. If the share price is low, a share consolidation can always be done to bring up the share price. A share consolidation will not affect value of the share, only the price, since the percentage ownership of the company is the same.

There have been some Hyflux perps and prefs who would like a liquidation scenario. From Nam Cheong's example, the asset values can go downhill super fast. In a span of 3 months, the asset value of Nam Cheong went from a positive RM1311 million to negative RM700 million. I do think that for economic reasons, a liquidation scenario will still be the worst outcome. Nam Cheong estimated recovery is not more than $15k for $250k and thats considering the MTNs are ranked equally with the unsecured bank lenders based on the first informal noteholder meeting held in July 2017.

I feel its highly unlikely that Hyflux perps and prefs will be offered a debt to equity scenario since we are considered equity already, actually. Neither will Hyflux be willing to give us fixed redemption date since we will be converted to debt and make the balance sheet worse off. A likely scenario will be asking us to reduce our distribution/dividends and maaaaayyybe, asking us to take part of it in shares.

Further reading
1) Considerations about Hyflux
2) The fate of Hyflux
3)Will Hyflux recover? The billion dollar question
4) Hyflux-Treatmeat of perpetual share holders- Ezion
5) Hyflux - loans and borrowings - Pacific Radiance
6)A happy ending for retail perpertual securities holders - Tiger Air and Hyflux
7) The Very Curious Case of Sharebuybacks- Hyflux
8)What did the founder/Chairwoman/CEO do to help hyflux throughout the years
9) Moving forwards at the Townhall meetings with Hyflux - Part 1
10) Moving forward at the Townhall meeting with Hyflux - Part 2
11)The Lucky Accredited Investors of Hyflux's Perpetual Securities - Part 3
12) The Peculiar Case of HyfluxShop - Question 12 
13)Uncovering the Real Motivations Behind the HyfluxShop 
14) High Level Staff Movement Indication of Red Flags -Hyflux
15)An industry comparison of Hyflux compared with its peers - Question 15
16)What other Water Companies did that Hyflux didn't - Question 16
17)Why a debt to equity option for retail investors is not right
18) Consolidated Questions For Hyflux Townhall Meeting on 19 and 20 July 2018 - Hyflux
19)Consolidated Questions For Hyflux Townhall Meeting on 19 and 20 July 2018 - Hyflux- continued
20)Informal Steering Committee for the Reorganisation Process - Hyflux
21) What happened to other Debt Restructuring Exercises - Ausgroup

Monday, August 6, 2018

What happened to other Debt Restructuring Exercises - Ausgroup

Ausgroup is not purely an oil and gas or marine company. It is also heavily involved in mining of iron and lithium and predominantly, their business is in Australia. What strikes me about this company is that it did not undergo a court supervised moratorium process, it engaged SIAs for assistance and underwent a restructuring process with its Medium Term Note (MTN) holders ( those kind need minimum $250,000 for a note). It has a substantial shareholder ( in a range of 15% to 20% shareholding before the troubles began) in Ezion, who is facing troubles of it's own. Ausgroup also owes Ezion shareholder loans. Unlike Hyflux, it does not have retail investors ( perps or preference shares).
Disclaimer: I am not an investment advisor. Heck, i am not even working in the financial industry. Below are my interpretation and i am grateful if you will let me know if anything i say is wrong and i will correct it in a reasonable time. I am not an expert and don't wish to be assumed to be one. I make losses frequently.

The journey of the MTNs holder (S$110 million 7.45%pa due 20 October 2016)

May 2016 - DBS Trustee notified Ausgroup of a breach in a convenant whereby the total equity fell below a certain threshold.

June 2016 - During the informal meeting with the noteholders, Noteholders were informed that DBS is a financier for :
1) Term loan facilities of US$12,769,650
2)Banker’s Guarantee Facilities of up to an aggregate amount of AUD51.2 million
3)Short Term Loan Facility of AUD30 million
4)Account Receivable Purchases Facility of AUD8 million
5) Account Receivable Purchases Facility of AUD15 million

Sep 2016 - Noteholders agreed to
1) Extend maturity dates by 2 years to 20 October 2018
2) A partial principal repayment of at least $4 million
3) Interest will be paid monthly at a rate of 7.95% pa for the year ending 19 October 2017 and 8.45% pa for the year ending 19 October 2018;
4) Make-whole premium. If notes a redeemed earlier, a 9.45%pa on the principal is payable on the outstanding principal
5)Redemption premium - 10% capital gains on sale of ports is payable if redeemed earlier than 20 October 2018

May 2017 - MTN noteholders and Ezion was asked to do a debt-to-equity conversion at $0.058. This was at a premium of 6.62% above the VWAP ( volume weighted average price) of $0.0544 on 18 May 2017. Understandably, the acceptance was low, Ezion only accepted to convert $8 million ( out of permitted $42 million) of its debt to shares , while only $28 million worth of  MTN notes ( out of $110 million) were converted.

Sep 2017 - MTN noteholders were asked again to do a debt-to-equity conversion at $0.058. This was at a premium of 21.8% above the VWAP of $0.0476 on 7 September 2017. 22 notes ( $5.5 million of debt) were exchanged to shares.

April 2018 - Ausgroup announced a proposed rights and placement of $0.035 representing a discount of 25.37% to the VWAP of $0.047 on 28 March 2018. This issuance could potentially raise $62 million in funds, out of which $21 million is allocated to redeeming the outstanding MTN notes.
These proposed rights and placement is conditional upon the MTN noteholder accepting a further restructuring of their debt.

Current NAV per share ( based on Q2 FY2018)= S$0.02
Current market price as of writing = S$0.035
Remaining estimated MTN noteholders loan after all the debt-to-equity conversions(estimated) = $71 million ( out of the original $110 million)

My thoughts about its relation to Hyflux

In the debt-to-equity conversion, VWAP is used as the basis for comparison instead of NAV/share.
In the Hyflux Townhall meeting, a lady actually stayed back after it ended and questioned why rights are not issued. The reply was that the equity is very low or the share price is already so low,  so Hyflux can't do it. I will be looking ( if time permits) at other examples where a company with negative equity can still issue rights. My point is, Hyflux has not done everything it could, so it would be grossly unfair for any perps/prefs to take any losses before rights or placement is undertaken.

There is some form of reciprocity when the notes were restructed. When the MTN holder allowed the maturity extension, they were given an increase in coupon rates and they were paid monthly for the interest. Of course,Hyflux perps/prefs do not have any maturity based on terms, so there is no such thing as maturity extension. The point is Hyflux perps/pref should not only give but also take. For example, any reduction of distribution/dividends to the perps/prefs should be accompanied with a fixed redemption date. However, a fixed redemption date will turn it into a debt ( currently accounted for as equity), which would make the balance sheet look worse. So, the Hyflux perps and prefs have to think of what to take.

DBS sold to the MTN holders these notes. DBS also provides financing to Ausgroup. It leaves one to wonder if there is a conflict of interest since many of these financing is done on a secured basis and are thus ranked first in terms of priority. Risk is reduced for banks since many MTN holders would take the brunt of the losses before the banks. When Hyflux perps and preference shares are underwritten or advised by banks who also finances Hyflux, is this considered right, even if it may be legally right?

Further reading
1) Considerations about Hyflux
2) The fate of Hyflux
3)Will Hyflux recover? The billion dollar question
4) Hyflux-Treatmeat of perpetual share holders- Ezion
5) Hyflux - loans and borrowings - Pacific Radiance
6)A happy ending for retail perpertual securities holders - Tiger Air and Hyflux
7) The Very Curious Case of Sharebuybacks- Hyflux
8)What did the founder/Chairwoman/CEO do to help hyflux throughout the years
9) Moving forwards at the Townhall meetings with Hyflux - Part 1
10) Moving forward at the Townhall meeting with Hyflux - Part 2
11)The Lucky Accredited Investors of Hyflux's Perpetual Securities - Part 3
12) The Peculiar Case of HyfluxShop - Question 12 
13)Uncovering the Real Motivations Behind the HyfluxShop 
14) High Level Staff Movement Indication of Red Flags -Hyflux
15)An industry comparison of Hyflux compared with its peers - Question 15
16)What other Water Companies did that Hyflux didn't - Question 16
17)Why a debt to equity option for retail investors is not right
18) Consolidated Questions For Hyflux Townhall Meeting on 19 and 20 July 2018 - Hyflux
19)Consolidated Questions For Hyflux Townhall Meeting on 19 and 20 July 2018 - Hyflux- continued
20)Informal Steering Committee for the Reorganisation Process - Hyflux

Thursday, August 2, 2018

Informal Steering Committee for the Reorganisation Process - Hyflux

Townhall Aftermath
I attended the Townhall meeting on 19 July and came back unconvinced.
" I am still young and i can work still work for you all..."said Olivia Lum.
Sounds heartwarming.
But, actions speak louder than words.
The preference and perpetual holders are the ones losing money but yet, the board of directors and Hyflux CEO/Chairwoman didn't mention anything about reducing their salaries or bonus to show reciprocity or sincerity.
Nevermind about Ezion CEO using his personal assets as collateral to secure more than $100 million of funds for Ezion and cutting his pay by 71%, we are not even asking you to use your personal assets, just show sincerity by cutting your pay.
It is ridiculous that the ones who made all the big strategic decisions are not accountable.
To be clear, i think the rank and file should not have a paycut.
Its the top that should have their paycut.
Its about the morale of the company and the suppliers.
Imagine suppliers are paid late or not paid, but the top echelons still keep their pay as though business is as usual, how would they feel?
This reminds me of a time where i lent my "friend" $1000 and he still hasn't paid me back. Instead, he just recently bought a Maserati, a much more luxurious car that i drive.

Despite sending questions to Hyflux through emails more than 2 weeks before and one email about 5 days before the Townhall meeting, some answers left unanswered. Why?

Disclaimer: I am not an investment advisor. Heck, i am not even working in the financial industry. Below are my interpretation and i am grateful if you will let me know if anything i say is wrong and i will correct it in a reasonable time. I am not an expert and don't wish to be assumed to be one. I make losses frequently.

Steering committee
The formation of the steering committee leaves a bad taste in my mouth.
It means that a restructuring to the terms, coupons or principal is "confirmed" to be in place.
What is the point of an informal steering committee where the choice of members are not clearly defined?
Is the steering committee just to create some form of artificial legitimacy to make any unpleasant decisions seem widely accepted?
To be clear, this is the first time in the history of Singapore where an informal steering committee is formed for retail investors. Imagine the headache to gather them together to discuss with the representative!
Also, it seems Hyflux and SIAS would like to lump N2H and BTWZ together. I have no issue with that. However, it has to be clear to the stakeholders that there are some differences between the 2 as i will state later.

Perplexing statements mentioned by Hyflux during the Townhall
  • Olivia Lum said she was given a projection of 8 million population. Where did this come from?
  • Regulatory approvals are needed at every stage of the bidding process for Tuaspring. Doesn't this slow down the bidding process while losses are mounting? What happens when an entity wants to buy Tuaspring at a high price but it doesn't get regulatory approval, and instead a low price bidder gets the regulatory approval?
  • Hyflux is unable to not buy and burn the Liquefied Natural Gas as it is a take-or-pay contract. If Hyflux doesn't buy, they will be penalised. Doesn't this result in an oversupplied electricity market since generation companies have to keep buying and generating?
  • Her statement" It's ironic that Hyflux failed in Singapore..." , when she pointed out that the Tuaspring project was meant to spearhead Hyflux's entry into the middle eastern countries since an integrated water and electricity project is desired in that region. Did she feel betrayed?Especially after volunteering her employees at NDP for so many years and even opening up her premises for Residential Committees events. Somemore on 25 August 2018 when they are in dire straits....
  • An Allen and Gledhill Lawyer will be available to BTWZ and N2H for free. How to contact him?
I think its worthwhile to understand the current rights of the preference and perp holders.
Please take note that this is my interpretation and i may be wrong.
It is also general and not being specific.

Rights of the Preference (N2H) shareholders
  • The dividends will accumulate if they are not paid. 
  • Ordinary shareholders cannot be paid ordinary dividends until all accumulated dividends to the N2H shareholders are paid.
  • Hyflux is able to redeem in whole or part of N2H by giving a redemption date and redemption price.
  • Hyflux may not be able to buy back in the open market ( on SGX) N2H. ( I did not see about the provision of purchase in the open market for N2H but i see it in BTWZ)
  • N2H shareholder has the same voting rights as ordinary shareholders if the following occurs:
  1. General Meetings are convened for the purpose of reducing the capital of the Company;
  2. General Meetings are convened for the purpose of winding up of the Company;
  3. General Meetings are convened for the purpose of sanctioning a sale of the whole or substantially the whole of the undertaking of the Company;
  4. General Meetings are convened where the proposal to be submitted to the meetings directly affects their rights and privileges as Class A Cumulative Preference Shareholders; or
  5. Dividends (when, as and if declared by the Board) in respect of such number of consecutive Dividend Periods as shall be equal to or exceed 12 months have not been paid in full when due and payable,
Rights of the Perpetual ( BTWZ) holders

  • The distribution will accumulate if they are not paid. This accumulated distributions will be considered as principal and bear interest.
  • Ordinary shareholders and N2H shareholders cannot be paid dividends until all accumulated distributions with interest are paid to BTWZ.
  • After May 2020, Hyflux is only able to redeem in whole at the principal value ( including accumulated distributions and interest)
  • Hyflux is able to buy back any amount, at any price, at any time ( even before May 2020) in the open market ( on SGX)
  • Within 6 months before a distribution is to be paid to BTWZ, if dividends are paid to ordinary and N2H shareholders, BTWZ has the right to hold Hyflux to a default. ( This has happened when the ordinary shareholders are paid a dividend in specie earlier this year but BTWZ is not paid it's distribution.
  • BTWZ has a trustee which would take action if 75% of principal value agree
What is worse is that the BTWZ distribution went EX-DISTRIBUTION already on 17 May. It was to be paid on 28 May but the automatic moratorium was announced on 22 May. 
What does this say about a healthy and functioning SGX market?
Ex-distribution means the money is considered in the pockets of the investors who held the BTWZ on 17 May. Logically, a healthy and functioning market would require the funds to be ring-fenced or placed into the BTWZ trustee's segregated account.

If this is not corrected, it sets a precedent where an investor can no longer make informed investing decisions using EX-dates. To be clear, investing around Ex-dates is a valid strategy by some people because it is a fact that prices do rise before Ex-dates and drops after EX-dates.

The Power to force Liquidation of Hyflux

Of course for economic reasons, liquidation of Hyflux will result in a bad scenario for N2H, BTWZ and ordinary shareholders, since their ranking is low.

This power to force liquidation would be more useful when Hyflux is healthy and used if the CEO/Chairwoman or BOD are enriching themselves at the expense of the other stakeholders. That is when we are able to get back more in liquidated value.

BTWZ at the moment should have this power because of the breaching of the clause and not paid the distribution on May 2018.

While there has not been any breeching of clauses for N2H, many people think that it has no power to enforce liquidation at this point. One way to get around this is to muster up 10% shareholding of the ordinary shareholders to call for an EGM to liquidate and the N2H will now have the same voting rights as them to vote together. However, this is a very very very unlikely scenario when one thinks about it.

Thanks for reading . Again, the above is from a layman who is just trying to understand what the heck is happening.

Further reading
1) Considerations about Hyflux
2) The fate of Hyflux
3)Will Hyflux recover? The billion dollar question
4) Hyflux-Treatmeat of perpetual share holders- Ezion
5) Hyflux - loans and borrowings - Pacific Radiance
6)A happy ending for retail perpertual securities holders - Tiger Air and Hyflux
7) The Very Curious Case of Sharebuybacks- Hyflux
8)What did the founder/Chairwoman/CEO do to help hyflux throughout the years
9) Moving forwards at the Townhall meetings with Hyflux - Part 1
10) Moving forward at the Townhall meeting with Hyflux - Part 2
11)The Lucky Accredited Investors of Hyflux's Perpetual Securities - Part 3
12) The Peculiar Case of HyfluxShop - Question 12 
13)Uncovering the Real Motivations Behind the HyfluxShop 
14) High Level Staff Movement Indication of Red Flags -Hyflux
15)An industry comparison of Hyflux compared with its peers - Question 15
16)What other Water Companies did that Hyflux didn't - Question 16
17)Why a debt to equity option for retail investors is not right
18) Consolidated Questions For Hyflux Townhall Meeting on 19 and 20 July 2018 - Hyflux
19)Consolidated Questions For Hyflux Townhall Meeting on 19 and 20 July 2018 - Hyflux- continued

Saturday, July 14, 2018

Consolidated Questions For Hyflux Townhall Meeting on 19 and 20 July 2018 - Hyflux- continued

Disclaimer: I am not an investment advisor. Heck, i am not even working in the financial industry. Below are my interpretation and i am grateful if you will let me know if anything i say is wrong and i will correct it in a reasonable time. I am not an expert and don't wish to be assumed to be one. I make losses frequently.

Below are a list of questions that members of the Telegram Group raised.
If i missed out any of your questions, do forgive me. I have submitted the questions to Hyflux.

Town Hall questions to Hyflux - continued
25
Other than Tuaspring, Hyflux holds a few other assets which are profit generating.

Instead of selling only Tuaspring and Tianjing Dagang , has Hyflux considered selling itself as a group?

26
CITIC Environmentech has as its major shareholders China Reform Holdings Corporation Ltd which is a wholly state-owned investment company. It has been securing many projects frequently.
Keppel and Sembcorp also have Temasek as a large shareholder and they are in the local power generation industry too.

Why does Hyflux not have any state-owned company investing in it ?
Has Hyflux approached or been approached by any state-owned company?

27
In the announcement on 6 July 2018, it is stated that Maybank will appoint her own valuer and they will be actively engaged in the divestment process.
Hyflux is given a deadline 15 October to sell Tuaspring.

What is the plan of Hyflux or outcome that will happen if Tuaspring is not sold by that date?
Why is Hyflux so confident to have a fixed date of sale by 15 October?
Can we have the reason why Maybank needs to appoint her own valuer and not take Hyflux’s valuation at face value?
How many offers does Hyflux have at this point in time?
Can we have any indication on whether these offers are above, around, or below the book value of Tuaspring as stated in the annual report 2017?

28
In your annual report 2017 page 5, you stated “ We have also announced our intention to divest the Tianjing Dagang Desalination in China as well as partially divest the Tuaspring IWPP in Singapore.”
It is stated in the announcement on SGX-ST 6 July 2018,” …to divest its interest in Tuaspring’s integrated Water and Power Project..”
Tuaspring uses Kristal proprietary membrane technology which should be a source of recurring income for the group.

Can you clarify whether Hyflux is going to divest fully or partially its stake in Tuaspring?
Will there be any recurring revenue to Hyflux  if Tuaspring is divested fully?

29
When Hyflux decided to built Tuaspring, it was one of the largest investment by Hyflux into a completely new business.  
EMA has stated as their goal that they were introducing more competition to the generation sector.
Hyflux has stated that the power plant was built to supply power to the desalination plant and the excess was sold to the grid.
The incumbent power generators like YTL and Tuaspower already have a first mover advantage in securing customers in the contestable market and locking them in. This is disadvantages to Tuaspring.
It seems the electricity business is a lousy business to be in.
Logically, if there was going to be cut-throat competition in the electricity market, Hyflux would have been better off buying electricity off the grid at USEP prices.

What motivated Hyflux to invest in Tuaspring?
Were there any incentives given to Hyflux from any government agencies?
Where and how did Hyflux forecast demand for the electricity?

30
Tuaspring sells electricity based on the USEP price to the contestable market and also based on the LNG vesting price to SP Group.

What percentage of the revenue from electricity is derived from selling at the USEP and selling at the LNG vesting price?

31
Can you clarify on the purchase of LNG as an input into the power plant of Tuaspring?
Is the purchase of LNG a long term contract and is the purchase price of the LNG contracted at a high price such that this could also be a factor in Tuaspring losing money?
Who does Tuaspring buy the LNG from?

32
Hyflux defaulted on BTWZ when they were not paid a coupon.
The moratorium was granted after the ex-date of coupon payment to BTWZ on 17 May 2018.

If you had enough funds to redeem either BTWZ or N2H, which would you redeem first?
Since the moratorium was granted after the ex-date of coupon for BTWZ, would these outstanding coupon incur the prevailing 6% pa as per the terms granted in the OIS?

33
Hyflux recently received a letter of intent from an Iranian repeat customer.

Can you clarify where Hyflux would intend to get the cash to service this customer?
Would Hyflux rather use any available cash to service this customer than to repay any amount due to the preference shareholders and the perpetual share holders?

34
Based on past restructuring exercises by other companies in Singapore, example, Ezion, a debt to equity swap was done.
It has to be highlighted that the investors of N2H and BTWZ are unsophisticated and many N2H have used their CPF accounts meant for their retirement.
They do not have the stomach and resources to handle a debt to equity swap.

Can you clarify if a debt to equity is on the cards for N2H and BTWZ?
What are the options for N2H and BTWZ?

35
The financial advisors and other entities have accepted shares in lieu of cash for payment of services  rendered to Ezion. This is to help the cashflow of Ezion.

Is Hyflux considering such an option to help in the cashflow of Hyflux?


Thursday, July 5, 2018

Consolidated Questions For Hyflux Townhall Meeting on 19 and 20 July 2018 - Hyflux

Disclaimer: I am not an investment advisor. Heck, i am not even working in the financial industry. Below are my interpretation and i am grateful if you will let me know if anything i say is wrong and i will correct it in a reasonable time. I am not an expert and don't wish to be assumed to be one. I make losses frequently.

Below are a list of questions that members of the Telegram Group raised.
If i missed out any of your questions, do forgive me. I have submitted the questions to Hyflux.


1
What is the breakeven USEP?
On what basis is Hyflux so confident that the USEP will rise?
What's the plan if USEP doesn't rise or Tuaspring is not divested?
How much the retail investors can get back if Tuaspring is sold at book value, below book value and above book value?

2
There was a consent solicitation exercise on Jan 2015 which was completed in Feb 2015.

Would Hyflux have been in breach of any financial convenants to the bondholders, without this consent solicitation exercise? 

3
Hyflux announced on 10 May 2018 of a coupon payment to BTWZ.
The ex-dividend is on 27 Maly 2018.
Dividends were given to the ordinary shareholders on Feb 2018.
Hyflux has broken a convenant.
We do not want to waive the right of default.

If we are asked to waive our right to hold Hyflux to a default, why should we do it since it will not harm the cashflow or operations of Hyflux?

4
The unrestricted cash position is only SGD18.6 million in June 2018.

Did Hyflux notice its cash position when declaring coupon for BTWZ in May?
Where did Hyflux planned to get the cash for BTWZ coupon originally?

5
In 2017,part of the issuance of btwz was used to redeem 2 tranches of wholesale perpetuals  which were issued in 2014, while N2H was issued in 2011. 
We would like retail investors to be treated fairly and equally on par with non retail investors. Accredited/wholesale investors may be thought of as those fully aware and capable to stomach all risks.

Why were the N2H not redeemed instead since it was issued earlier than the wholesale perpetuals?
What is the detailed plan to redeem the retail preference shares (N2H) and perpetuals (BTWZ)?
What are the milestones that must be reached before the redemption occurs?

6
The management of other companies facing similar fate to Hyflux has shown a willingness to take responsibility.
Ezion CEO took a pay cut of 19% in 2015, 42% in 2016 and another 38% in 2017. Total pay cut of 71% , comparing 2014 to 2017.

Why isn’t Hyflux management not taking such paycuts early on and deferred bonuses?

7
The wholesale bondholders generally consists of more sophisticated investors who have the capacity and resources to take on more risk or losses. The retail investors are less sophisticated with many of them retirees who could have used the CPF funds which are meant for retirement purposes.

 Are there any new terms given to the wholesale bondholders?
Can you share with us how these new terms will disadvantage the retail investors?
Can you share us whether Hyflux took into consideration the different investor profile of the whole investors and the retail investors to determine the new terms?

8
We noticed that the remuneration in stock options for the Chairwoman/CEO/Founder reduced along the years, while the cash component of her salary increased.
Hyflux is currently facing cashflow issues.
           
Can you explain the rationale for increasing the cash component of salary?
Going forward, can we have a higher percentage in stock options instead of cash to show alignment of interest?

9
When comparing salary( cash) with Hyflux industry peers, Chairwoman/Founder/CEO seems to have the largest salary in cash, despite making losses, while her peers are still profitable.
Peers are Darco, Citic Environtech, Moya Holdings, China Everbright.
           
What is the rationale for this?

10
When comparing with Hyflux’s industry peers, Hyflux seems to have directors, as a percentage, who have served the longest on the board?
Peers are Darco, Citic Environtech, Moya Holdings, China Everbright.

           
What is the rationale for this?

11
When comparing with Hyflux’s industry peers, other than Darco, Hyflux is the only other company with Chairwoman and CEO position under the same person
Peers are Darco, Citic Environtech, Moya Holdings, China Everbright.

           
What is the rationale for this?

12
We noted that Hyflux has never done a placement or rights issue as a form of fund raising. In comparison, her peers have actively done a mixture of rights and placement, in addition to borrowing and bond issuance. Peers include Citic Envirotech, Darco, China Everbright, SIIC Enviroment holdings and Moya Holdings Asia

Why were there no rights or placement shares in the history of Hyflux?
Are there any current investors looking to invest through placement and will you be open to dilution?
Would you prefer to borrow or do a placement in this current situation? 

13
Hyflux has conducted massive sharebuybacks across the years from 2011 to 2015.
During this period, Hyflux has also borrowed money from retail investors and wholesale investors.
The cashflow of Hyflux is poor.

What is the rationale for conducting such massive sharebuybacks?

14
Hyflux bidded $0.45 per cubic metre with PUB for 1st year while TP-STM bidded $0.91 per cubic metre in 2017. 

Why did Hyflux bid so low?
Will the price with PUB increase after first year and will this help in the cashflow of Hyflux?
Is the loss of TS contributed partly by the low price to PUB?

15
Besides TS, are there any other projects that are facing loss?
16
Hyflux has stated that the loss was mainly attributed to Tuaspring and there is currently an oversupplied electricity market.
Current supply and demand can be easily calculated.
Tuaspring is also one of the largest investments by Hyflux .
The electricity market is also a new venture to Hyflux.

During planning of Tuaspring, did Hyflux forsee the oversupply of electricity? 
Regarding the forecasted electricity demand, where did Hyflux get this information from and how different is the forecasted demand compared with the current demand?
Was there some incentives given to Hyflux such that Hyflux made such a fatal bet on this market?

17
Hyfluxshop issued SGD20 million worth of preference shares to Hyflux.
Hyflux currently is facing cashflow issues itself and should not be in the position to lend fund.

Why didn’t HyfluxShop issue the preference shares to Olivia or find other investor/source of funds instead?

18
Is Hyflux seeking any government assistance?
19
There is a recent hike of electricity tariffs of 6.9% in 3rd quarter of 2018.

How much does Tuaspring benefit from this hike?

20
There is a recent hike of water tariffs of 30% in July 2018.

How much does Tuaspring benefit from this hike?

21
The revenue of generators consist of those sold in the wholesale market ( USEP price ) and those sold to SP Group ( vesting price)

What is the percentage of Hyflux revenue dependent on vesting price and USEP price?
What is the percentage of Hyflux electricity taken up by the vesting contracts?
Does Hyflux have visibility on the amount of vesting contracts it will be entitled to when planning for Tuaspring?

22
Hyflux has stated that she is trying to sell Tianjing Dagang and Tuaspring.
Tianjing Dagang is an asset in China, while Tuaspring is an asset in Singapore and we know that Singapore is facing an oversupply of electricity.
Both have taken a longer than expected time to sell.

Are there any inherent issues with Tianjing Dagang that it is taking such a long time to sell?

23
TuasOne is coming online in end 2018 or 2019. This will add to the supply of electricity.

Will TuasOne be another Tuaspring?

24
Hyflux built Tuaspring in 2012.
Hyflux must have based the investment on demand and supply considerations.

Did Hyflux take into account electricity sources from other embedded generation and renewables such as solar generation to determine the supply?
Were such information readily available for Hyflux then?