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.
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.


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

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