Saturday, June 23, 2018

What Other Water Companies Regularly Did But Hyflux Never Did - Hyflux - Question 16

"I took my suppliers out for an event and i spent $XX,000 on my XXX credit card...." says my wife. Discontent immediately filled me and i retorted " Why didn't you use the YYY credit card, i painstakingly labelled the cards for each specific purpose, you have basically lost many krisflyer miles, enough to take a free saver ,return business class to New York!"

"You shut up! You lost many multiples more in Hyflux!...." . With that, i retreated into my Man-Cave.....knowing full well i could never raise my head up high in this household again, unless of course, i got back my money. My ever faithful three-year old wingman followed me behind.

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.

Sources of funds
Companies have many ways to raise fund.
They can:
1) Borrow from bank
2) Issue bonds, preference shares and perpetual securities
3) Director's loan
4) Rights issuance and placement shares
5) "Borrow" from suppliers when they extend their trade payable dates
6) Go Initial Public Offer

Each has it's merits and demerits. Most notably, rights issuance and placement shares are important because they do not impose a heavy burden on the cash flow of the company in the form of interest. They also improve a company's debt ratios.
However, they result in the dilution of existing shareholder's control in the company, unless the existing shareholders have enough funds to subscribe to their rights entitlement or are given a chance to participate in the first place.

Now back to Hyflux. 
Hyflux has NEVER done a rights issuance or placement shares in its history!

Let's take a look at the close ,locally-listed ,competitors of Hyflux.

Notice how everyone of them does rights issuance and placements regularly?
To be clear, they have also embarked on other sources of funds.

But the question is, why does Hyflux choose to omit rights issuance and placement as a source of funding? 
Instead, they love to issue preference and perpetual securities with no voting rights.

What They Do:
Darco specialise in designing, fabricating, assembling, installing and commissioning engineered water purification and wastewater treatment systems

Fund Raising:
Feb 2015 - Rights issuance
Feb 2017 - Placement of shares
Nov 2017 - Placement of shares
Feb 2018 - Placement of shares

Citic Environtech
What They Do:
Citic Environtech is a leading membrane-based integrated environmental solutions provider specializing in water and wastewater treatment, water supply and recycling.

Fund Raising:
Feb 2007 - Placement of shares
Oct 2009 - Placement of shares
Mar 2013 - Placement of shares
Nov 2014 - Placement of shares
April 2015 - Placement of shares
Dec 2017 - Placement of shares
Mar 2018 - Placement of shares

China Everbright

What They Do:
China Everbright has six major business sectors, namely environmental energy, environmental water, greentech, envirotech, equipment manufacturing and international busines

Fund Raising:
April 2006 - Placement of shares
Sept 2009 - Placement of shares
Dec 2013- Placement of shares
Aug 2013 - Placement of shares

Moya Holdings Asia
What They Do:
Indonesians need access to clean piped water. Local governments need help. We are building new treatment plants and expanding pipe networks.

Fund Raising:
Nov 2011 - Rights issuance
May 2018 - Right issuance

SIIC Environment Holdings
What They Do:
It is engaged in wastewater treatment, water supply, solid waste management and other environment-related businesses.

Fund Raising:
April 2008 - Placement of shares
October 2009 - Placement of shares
March 2010 - Rights issuance
October 2013 - Placement of shares
October 2014 - Placement of shares
May 2017 - Placement of shares

Hyflux is a good company with a viable business model, the problem is with the management. Therefore, i would reasonably expect it to be successful without the current management.

However, as Hyflux is in a tight time situation ( 6 months moratorium), i would think it would be quite unlikely to quickly find a replacement who can get up to speed. However, if such a top dog person should appear, i hope the management would humbly give up their throne. I hope the controlling shareholder would also be open to diluting her stake to cede control of her baby to save his life. In the long run when Hyflux survives, the management, please just go relak one corner to not cause any damage. ( 越幫越忙)

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

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