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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?

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:

General Meetings are convened for the purpose of reducing the capital of the Company;
General Meetings are convened for the purpose of winding up of the Company;
General Meetings are convened for the purpose of sanctioning a sale of the whole or substantially the whole of the undertaking of the Company;
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
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.

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

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 3^rd 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?

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