Thursday, May 31, 2018

Hyflux - loans and borrowings - A noob/layman's interpretation - Pacific Radiance

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.

Actually, i think i learnt a lot during this episode. A person will not have the motivation to read in detail the annual report unless sh**t hits the fan. But without reading in detail, there will come a point where we will lose. So without losing, learning doesn't take place. So in life, we must fail sometimes to be wiser. Just hope we fail the small ones ....

Taken from annual report 2017
Unsecured debt ( red box)
By looking at the breakdown of the loans and borrowings, the amount of unsecured debt ( collectively the loans and notes) amounted to $1,036,410 thousand. As a percentage of debt, it is about 68%.

Nominal interest rates and year of maturity (green box)
I am quite surprised to see Hyflux actually paying quite a low interest rate ( as low as 1.7%) on their unsecured loans with maturity up to 2026.

Pacific Radiance
From Pacific Radiance investor relationship Jan 19, 2018
I am actually quite surprised to see that for Pacific Radiance, the estimated recovery would be 0% for unsecured creditors and 4.3% for unsecured noteholders. I don't know the exact terms in the notes or informal meeting, but superficially looking at this picture, it seems that there is a chance that my misconception that creditors which i interpret as including banks rank higher than noteholders which i interpret as including bondholders.

If my layman interpretation is right, there does seem a chance that in Hyflux's case , it is in the unsecured bank creditors  interest to keep Hyflux as a going concern as they hold $770,640 thousand debt as compared to the unsecured noteholders of  $264,783 thousand debt.

But i am a perpertual ( N2H) and preference (BTWZ) holder, not a noteholder. I rank lower.

Now, if i extend to the case of Ezion, it was quite surprising to me that the perpertual holders actually got quite similar terms with the noteholders and actually it was quite favourable , so much so that a CEO of an asset management had this to say:

Mr Alexander Zeeh, chief executive of SEA Asset Management, which holds some of the Series 004 bonds in the S.E.A. Asian High Yield Bond Fund, said: "The terms for the perp holders seem to be too generous compared with the senior debt holders. Perp holders get the option to be repaid in 10 years, that's shorter than a perpetuity." - from here.

Conclusion

For me, i have psyched myself to totally write -off the whole investment with a nil return. Any amount back would make me a happier person as my expectations were the lowest to begin with.

I do not think that it has reached a situation where the banks think that " it is too small to fail" and it won't hurt us much, so just kill it type of situation. It is in the vested interest of banks to keep it going, though the Tuaspring problem need to be settled as losses after losses would also mean better cut loss quick.

But if and when Hyflux do get back to shape, i do hope that Olivia and her board of long serving directors step down. Because, of the following quote by Albert Einstein.

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

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