Saturday, January 19, 2019

What happened at Hyflux's Second Townhall Meeting.

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.

" My company today is unlike other restructuring..the founder is still in the driver seat in those companies. They still own substantial shares, so they will still want to continue running the company . Whereas in this case, when the Salim Medco come in , they are only willing to take a 60% . So when they are taking over 60 % , i lost control and i also volunteer not to take up any management shares, so practically im not in the drivers seat anymore...........if you are so happy to see that i take some paycut, i will but i will only take the paycut and donate away because i think its right and i will not pump back to company because that will only benefit the new shareholders" - Olivia Lum

"I dont have a deep pocket and all along i have been too ambitious but the irony is there are so many projects that are built around the world but it is the project in singapore that caused the downfall of singapore. We didnt predict it. But during that time when we took it, it was not a single person decision. The PUB has to approve it, all the independent engineers and advisors have to say yes and the banks have to approve it as well before we can even get involved in this project. So during that time, everybody was singing praises about it. It was the most excellent and most sustainable way. Otherwise knowing Singapore,  nobody would stake out their necks and award something that is unsustainable in Singapore but something happened along the way and i dont want to mention it all over again . It was the situation about the electricity in Singapore and we are one of the victims. Other companies are also losing money but we are small." - Olivia Lum

So the above pretty sums up the state of the Company. No proposals were shown during the townhall except for informing that in the case of liquidation, perpetual and preference share holders will get 0% as they are ranked behind the banks and bondholders. From my gut feeling based on the replies, i think that it is very likely that the perps and preference shares will be converted to ordinary shares, perhaps with a token cash payment. The proposal should be out in mid-feb. 

My Thoughts

1)Salim wants to take the company debt free and they want Tuaspring. It seems most likely that they want everyone to be converted to ordinary shares in the end. The funny thing is ,Perpetual and preference shares are not debt. There is no redemption date for perps and preferences shares and they are classified as equities. The better alternative would be to stay on as perps and preference share, perhaps lower the coupon rate, instead of converting all into ordinary shares. But, it seems this is not the intention from my gut feel.

2)Maybank as a secured creditor seems to have the upper hand among all the different creditors. It is funny why they have such a privilege because, though secured, they have no other recourse since it is secured to Tuaspring only. This means that if Tuaspring is sold at say $400 million, while the maybank loan is about $500 million, Maybank only can recover $400 million. Maybank would not be able to go after other assets of Hyflux. 
From this train of thought, i still think Sembcorps low ball deal for Tuaspring only was better than Salim's offer for the whole Hyflux.
If it was the contingent liabilities that would be payable upon a change of Tuaspring ownership or liquidation that Hyflux is so afraid off, then i wonder why the offtaker(PUB) is not understanding enough to know that there are many Singaporean fathers, mummies, retirees who are affected by this, and so waive off such contingent liabilities. 
It may be such contingent liabilities that could be imposed by the offtaker (PUB) that could hit Hyflux at the group level that Maybank is leveraging on.It's really ironic if you ask me. 

3) Further to point 2, Olivia revealed that when they got into trouble, straightaway they approached PUB and NEA because Hyflux was doing projects for them. She also commented that there is no ministry that look after restructured companies, so i think i can't speak on behalf of the government, she said. I find it really ironic. Now, in my mind, is it a situation, again where Maybank is leveraging on the terms of the contract between Hyflux and PUB and NEA to hit Hyflux at the group level through contingent liabilities? SIAs Gerard continued with" Last time i told you to talk to your MP".

4)Why did Hyflux issue perpetual issues in May 2016 when the management know Hyflux is in Serious trouble? Why did the companies not issue rights but instead issue the perpetual securities in 2016?
Hyflux issued the perpetual securities in May 2016. That was after winning a big project in Egypt that was worth $500 million. At that point in time, Hyflux was still very profitable, we were just starting out the power operations, so it wasnt apparent at that point in time that it would reach to this extent. So at that time when we issued the perpetual securities, the prospect of repaying the perpertual securities was still very good. Why we did not raise any rights issues at that point? The market cap at that point was roughly only about $800 million, so raising $500 million in rights was not viable. - Hyflux CFO own words.

Firstly, i think she may have gotten her facts wrong as the highest market cap was about $550million ( $0.604 -Mar 11 2016) or $380 million ($0.447 - Jan 27 2016). NOT roughly $800 million. A difference of about $250 million to $420 million is a lot.  

5)"As a company, the book value of our assets are evaluated for impairment on a regularly basis and we have been doing that , so even if the 2017 results that we released in February 2018, the book value for all the assets were also assessed for impairment, so at that time, we were actually talking to several interested parties for the purchase of the Tuaspring plant and the numbers that were being spoken about at that time was pretty much close to the book value. The most recent exercise was under very different circumstances so its not a fair comparison  to compare the exercise with the one that we had last year." - Hyflux CFO

This statement is very very troubling. If the negotiations were around the book value of $1.3 billion before the VOLUNTARY filing of the court protection. Did the Board of Directors just caused investors a massive loss in their investment by VOLUNTARILY filing the protection? In my mind, it seems that companies were low balling Tuaspring or Hyflux after the court protection such that it is stated that the offered prices aren't even enough to cover Tuaspring Maybank loan of $500 million. 
A loss of about $800 million or more in value ( $1.3 billion to $500 million)!

Did the advisors advise wrongly and the BOD made the wrong decision to go for court protection, VOLUNTARILY?
Yes, maybe there could possibly be some expectation of incoming lawsuits, but if that is the case, couldn't they fight the lawsuit and when lost, then file for court protection? This would have given some more time for the purported time needed to sell Tuaspring before everyone in the whole world knows how dire the state Hyflux is in and start lowballing.

My intentions

Sias Geraid mention that " something is better than nothing". While that is of course is true, i think it depends on the context. 

I have a large stake in Hyflux perps and i will only accept a reduction in coupon while my perpertuals continue under the same terms and remain on the books. This is the minimum i expect. 
If this minimum is not met, i would choose to liquidate and lose it all. 

Simply put, being given Hyflux shares is not enough. It would take years ( if possible) to reach back my capital and judging from the number of retirees at the Townhall, honestly, they don't have that many years left on this earth also. 
By allowing all our perps and prefs to convert to ordinary shares, the real winner is Salim Group ( indonesions) and Maybank (Malaysians). Why would i want that?
The other winners of course are those high level people who have been singing praises of Hyflux and using Hyflux as the banner of entrepreneurship, using Hyflux for their environmental ambitions and using Hyflux as a way to secure our water supply at really very very cheap rates when Hyflux bidded for the Tuaspring project.
Olivia Lum is also the winner in the sense that her legacy lives on!

Since the court protection has been done( which shouldn't have been done so fast at least in my opinion) and the value of Tuaspring has been reduced such that the Maybank loan cannot be covered by a sale.
What can be done going forward? 
If Hyflux is so afraid of the contingent liabilities that will hit Hyflux at the group level if Tuaspring was liquidated by Maybank, why can't these contingent liabilities that will hit Hyflux at the group level  be waived by the offtaker (PUB), reducing the leverage that Maybank has. After that, then sell Tuaspring at whatever price as it isn't important now, Maybank will take the hit. Banks then extend credit lines to complete the Tuasone project and the Tuasone offtaker also waive off the contingent liabilities ( late completion penalties etc). ..but no..this will not happen.
Instead what has happened?
Salim ( the Indonesians) has to come into the picture to pump in just enough money to complete Tuasone because the banks wont help, and because the offtakers won't help. How ironic! The real, affected losers are the Singaporean fathers, mummies and retirees who again ironically, are not the ones demanding their money back right now since theirs are perpetuals/preference shares with no redemption dates!

Don't worry, PUB is still able to take over Tuaspring and charge some contingent liabilities as per the picture above, so our Water will still be safe.

This is my choice.
Enjoy your weekend!

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
23) My layman views of the so-called " White Knights of Hyflux"
24) The Unsecured Working Group (UWG) are against the retail investors - Hyflux
25)Where to find money to pay back retail investors? 

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