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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?

Saturday, January 5, 2019

Where to find the money to pay back retail investors?- Hyflux

If you are still unaware, a telegram group consisting of Hyflux retail investors has been set up to facilitate communication. One can sense the frustration of retail investors from the messages posted. Every now and then, there are people who would offer good insights into what is happening. With such a long wait for the outcome and lack of concrete updates from the investor relations, it is little wonder that speculations are rife. Some even commented that since Hyflux doesn't seem to have much money, is it possible to claim from the professional indemnity insurance of the board of directors, advisors, e.t.c.

I received some questions from an anonymous member of the telegram group which i thought is good to share. These questions can be asked in the upcoming Townhall meeting on 18 January (Friday) and no, i did not email the Hyflux investor relations nor SIAs about these questions.

Question 1

Reference to your FAQ on your website, it was mentioned there was no default, no legal demand and that the filing was voluntary to proactive protect all stakeholders. If this was what your external advisors advised, should the outcome of this exercise result in significant cut or total wipe out of pref and perp value as compared to the last traded price, will management and BOD be willing to support stakeholders in making claims against your advisors since you have probably been misled into thinking that this is the best course of action? It is like you having a flu with slight fever of 37.2, your doctor prescribes a very strong antibiotic and after taking, you have an allergy reaction and went into coma. Wouldn’t the doctor be negligence since the risks probably outweigh the benefits?

Relevant article

https://www.hyflux.com/financial-reorganisation-exercise/shareholders-and-holders-of-securities/

Question 2

As per Singapore Standard of Auditing (SSA) 570 pertaining to going concern, auditor is supposed to assess company’s forecast over the next 12 months for the continual use of going concern assumption. With the company entering into a scheme within 5 months from the last financial year end date and 2 months from the audit report signed off date, what is the current status for the 2017 audit report. Is auditor affirming to their 2017 report or have the report been withdrawn? (Personal note, no need to ask HF – Shouldn’t ACRA, the regulator governing auditors start an audit on KPMG’s working paper too?)

Relevant article

https://isca.org.sg/media/777078/ssa-570-revised-july-2015.pdf

Question 3

In the first town hall meeting, it was mentioned that water contributes only 10% of TS revenue (Summary of the meeting at below link). Page 138 of the 2017 annual report, under discontinued operation put TS external revenue at S$174m. So, it is right to assume revenue from water is only S$17m in 2017?

Relevant article

https://secure.fundsupermart.com/fsm/article/view/14296/six-takeaways-from-hyflux-s-first-round-of-townhall-meetings

Question 4

According to announcement dated 11 April 2011, first year selling price per cubic of water to PUB was set at S$0.45. In view of this, should TS be making at least 0.45 x 318,500 x 365 days = S$52m from water sales annually?

Relevant article

http://investors.hyflux.com/newsroom/20110406_123709_600_40E33ED3154E853A4825786A00141CB4.1.pdf

Question 5

When is the date whereby TuasOne faces liquidated damage from delays in commencing operation and how much will the liquidated damages be?

Question 6

Noted that TuasOne has a 25 years deal with NEA, can you reveal the daily contracted incineration capacity? Do you have a committed 3600 tonnes per day from NEA? If not, what is the tonnage committed and for how long?

Question 7

Have the company done an impact assessment on the future incineration demand given the following factors?

- NEA reported daily solid waste at around 8443 tonnes a day and with the new TuasOne, a total of 3600 tonnes per day capacity will be added to the whole of Singapore.

- Sometime around 2025, a new integrated waste management facility will come online in Tuas with incineration capacity of 5800 tonnes per day. And

- Singapore is targeting a recycling rate of 70% by 2030 and what if this target is overshoot

How does the above impact TuasOne in securing enough waste for running the WTE plant at high capacity level?

Relevant articles

https://www.nea.gov.sg/our-services/waste-management/overview

https://www.straitstimes.com/singapore/environment/2-green-plants-to-improve-waste-treatment-efficiency

https://www.mewr.gov.sg/ssb/our-targets/resource-sustainability/domestic-recycling-rate

Question 8

During 2011, why HF did not enter into vesting contracts with the government and locked in the electricity selling price whereas most of the additional capacity are thought to have been build basis on LNG vesting contract?

Relevant article

http://singaporepowerdesk.com/loss-making-power-generation-sector-in-singapore-requires-bold-steps/

Question 9

What is the value of the power generation assets in Tuaspring? Alternatively, are you able to reveal the total price paid to Siemens? Back in 2011, industry sources have been quoting a figure of around US$500m for the power portion.

Relevant article

https://www.eco-business.com/news/hyflux-in-talks-over-tuaspring-power-plant/

Question 10

With 90% of TS revenue coming from power generation, does entry into power generation constitute major transaction which require shareholders’ approval? Did the company obtained shareholders’ approval prior, and If not, why is it so?

Under SGX Practice Note 10.1, 3.2.2 states that “However, should the acquisition change the risk profile of the issuer, shareholders should have an opportunity to have their say on the proposed acquisition. This is so notwithstanding that the acquisition will not change the main business of the issuer. Acquisition of the power turbine from Siemens forms a substantial part of the group assets and will change the risk profile of the group as exhibited by the current dire situation largely caused by exposure to the electricity market.

http://rulebook.sgx.com/en/display/display.html?rbid=3271&element_id=5634&print=1

Further reading

Tuesday, December 25, 2018

The Unsecured Working Group (UWG) are against the retail investors - Hyflux

Based on the 15 Nov affidavit, the Unsecured Working Group ( UWG) consisting of 5 banks and representatives of the Medium Note Holders ( those who bought the wholesale bonds at 250k minimum), collectively known as accredited investors proposed the following for the perpetual securities and preference shares holders ( retail investors):

In addition to the above, there were other statements in the affidavit meant to put retail investors at a distinct disadvantage in receiving any recovery rom their investment .

Below are some quotes from the same affidavit.

My thoughts

It is like the rich vs the poor.
Not too long ago in 2016, the proceeds of the $500 million pumped in by retail investors ( perpetual securities) was used materially for the repayment of accredited investors of a total $275 million as stated in the Offer Information Statement. And accredited investors are now trying to maximise their recovery at the expense of the retail investors.
A classic example of why the rich-poor divide keeps widening. The retail investors are really the carrot heads here.

To add injury to the insult, i will like to highlight what i deem to be wrong about the Offer Information statement for the perpetual securities in 2016. Whether it is against the law or any regulation, i am not sure. But morally, to me , it is wrong.

In Feb 2015, Hyflux had a consent solicitation exercise with accredited investors. This is published in their investors relations website. The purpose is to:

Now, take this into context with an article published on Nov 2016 showing the various consent solicitation exercises undertaken by local listed companies before and where these companies are now at. Among the companies that have undergone consent solicitation are Rickmers marine, marco polo, Nam Cheong, Ausgroup..... It seems consent solicitation exercises are mostly negative.
Why would a company need to undergo a consent solicitation exercise to amend the terms of the original bond or security if nothing is wrong or nothing is going to be forseeably wrong in the future?

This consent solicitation exercise doesn't seem to be stated in the Offer Solicitation Statement for the perpetual securities.

So the question is:

Is the consent solicitation exercise a material disclosure in the Offer Information Statement ( Perpetual Securities) to the retail investors since it generally is a forewarning of danger?

Let's see where Hyflux could have inserted this disclosure. I don't think Feb 2015 is too long ago to be immaterial as underlined below, last 3 years seemed to be relevant.

Or Hyflux could have inserted it anywhere it deemed fit to cover themselves actually.
To me, a highlight of the consent solicitation, written in simple english preferably and the reason for such an exercise, without which, what will foreseeably happen should be disclosed.
As one can see from the timeline of the part 3 years, only the good or general stuff is shown.

So long story short,

Consolicitation Exercise done with accredited investors

Funds ( whose beneficiaries are materially the accredited investors) raised from Retail investors who are not informed of this consolicitation exercise through the offer information statement (OIS)

Funds used to repay accredited investors

Accredited investors now trying to maximise their recovery at the expense of the retail investors.

Further reading

Saturday, October 20, 2018

My layman views on so called " white knights" of Hyflux

Overview

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.

Link to news

2) The most recent news that an Indonesian consortium led by Salim and Medco group are interested in Hyflux.

Link to source

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.

Conclusion

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

Wednesday, August 8, 2018

What happened to other Debt Restructuring Exercises - Nam Cheong

Nam Cheong is in the business of shipbuilding and vessel chartering. Its business was affected by the oil price environment leading to the oversupply of newly built offshore supply vessels by competitors and lower demand of its vessels.

The journey of the MTNs holders, comprising of $90 million 5% due 2017, $200 million 5.05% due 2019 and $75 million 6.50% due 2018

Jan 2017 to March 2017 - Resignation of CFO and CEO sold shares

March 2017 - Auditor flagged that as of 31 December 2016, the Group’s loans and borrowings that were classified as current amounted to RM948,720,000 of which RM278,566,000 (S$90 million) pertained to medium term notes that are due for repayment on 28 August 2017. These amounts exceeded the Group’s cash and cash equivalents of RM162,618,000 as at 31 December 2016.

July 2017 - Informal noteholder meeting held. The following was mentioned:

All unsecured lenders ( banks and noteholders) will be treated equally.
Possible support from major shareholder through dilution of shareholdings and injecting of funds.
Secured assets to be sold (if applicable) and repaid to the secured creditors.
Secured debts which are not represented by the value of the secured assets will be settled pari-passu with unsecured debts
All unsecured debts will be treated equally under the Schemes of Arrangement of the Company and its subsidiaries (“Scheme Companies”)

May 2017 - The quarterly financial statement ended 31 March 2017 showed a positive equity of RM 1,311 million

August 2017 - The financial statement ended 30 June 2017 showed negative equity of RM 700 million.

As part of the management comments about total assets:

Total assets of the Group decreased by RM2.36 billion from RM4.10 billion as at 31 December 2016 ("FY2016") to RM1.74 billion as at 30 June 2017 ("PE2017") mainly due to assets impairment and written down of RM2.0 billion mentioned above.

September 2017 - 2nd informal noteholder meeting held. It was announced that a rights issuance will be conducted with the chairman committing USD11 million to subscribe for it. There was a choice for noteholders who refused the base scheme to opt for either option A or option B.

Base scheme ( simplified) -
35% of principal to be converted to equity at a rate of (estimated)SGD $0.08 per share. ( USD1 for 17 shares).
65% of principal will be converted to a 7 year term loan at 4% pa, where the interest of 4% is partly paid in shares and cash. Based on the current price of SGD$0.02 since suspension, estimated recovery represents about 73.6% of principal.

Instead of the 65% of principal converted to a 7 year term loan, , noteholders can choose the following:
Option A ( simplified)- Rights will be issued to current shareholders,part of the proceeds will be used to pay those who chose this option. Estimated recovery from this will be 13.5% - 23.5% of principal. No further claims.
Option B (simplified) - total conversion to equity at USD 1 for 34 shares. Estimated at SGD$0.041 per share. No further claims. This represents an estimated recovery of 41% of principal.

The chairman also commited not to sell his shares for 7 years and his entitled rights for 1 year.
Among which, a management incentive plan was in place that focused on meeting cashflow targets.

October 2017 - 6 months court moratorium filed. Court proceedings were also filed in Malaysia

Dec 2017 - A FAQ to clarify the restructuring terms was issued. (The terms must be changed between Sep and Dec as the new terms are much improved).

Base scheme ( simplified) - 35% of principal to be converted to equity at a rate of (estimated)SGD $0.047 per share. ( USD1 for 30 shares). 65% of principal will be converted to a 7 year term loan at 4% pa, where the interest of 4% is partly paid in shares(2%) and cash(2%). The 2% interest will be converted at a rate of USD1 for 30 shares.
Option A ( simplified) - seems to stay the same
Option B (simplified) - I didn't see any mention.

It was mentioned that if the MTN chose the liquidation route, they would get not more than $15k for their investment of $250k.

Through the restructured deal, the chairman who is the major shareholder would stand to dilute up to 68% of this shareholding.

It was further mentioned that the rights issuance pricing would be at a price of $0.014 per share , a 30% discount to the suspended traded price of $0.02 per share. The USD11 million which the chairman committed will be used to subscribe for these discounted shares ( $0.014 per share). This USD11 million will be conditional upon the restructuring being agreed upon by the creditors.

My thoughts about its relation to Hyflux

Nam Cheong is an example where rights can still be issued when a company has negative equity. It's suspended share price is $0.02 which is also very low. What this means to me is that there is no excuse for Hyflux not to issue rights. If the share price is low, a share consolidation can always be done to bring up the share price. A share consolidation will not affect value of the share, only the price, since the percentage ownership of the company is the same.

There have been some Hyflux perps and prefs who would like a liquidation scenario. From Nam Cheong's example, the asset values can go downhill super fast. In a span of 3 months, the asset value of Nam Cheong went from a positive RM1311 million to negative RM700 million. I do think that for economic reasons, a liquidation scenario will still be the worst outcome. Nam Cheong estimated recovery is not more than $15k for $250k and thats considering the MTNs are ranked equally with the unsecured bank lenders based on the first informal noteholder meeting held in July 2017.

I feel its highly unlikely that Hyflux perps and prefs will be offered a debt to equity scenario since we are considered equity already, actually. Neither will Hyflux be willing to give us fixed redemption date since we will be converted to debt and make the balance sheet worse off. A likely scenario will be asking us to reduce our distribution/dividends and maaaaayyybe, asking us to take part of it in shares.

Further reading

Monday, August 6, 2018

What happened to other Debt Restructuring Exercises - Ausgroup

Ausgroup is not purely an oil and gas or marine company. It is also heavily involved in mining of iron and lithium and predominantly, their business is in Australia. What strikes me about this company is that it did not undergo a court supervised moratorium process, it engaged SIAs for assistance and underwent a restructuring process with its Medium Term Note (MTN) holders ( those kind need minimum $250,000 for a note). It has a substantial shareholder ( in a range of 15% to 20% shareholding before the troubles began) in Ezion, who is facing troubles of it's own. Ausgroup also owes Ezion shareholder loans. Unlike Hyflux, it does not have retail investors ( perps or preference shares).

The journey of the MTNs holder (S$110 million 7.45%pa due 20 October 2016)

May 2016 - DBS Trustee notified Ausgroup of a breach in a convenant whereby the total equity fell below a certain threshold.

June 2016 - During the informal meeting with the noteholders, Noteholders were informed that DBS is a financier for :
1) Term loan facilities of US$12,769,650
2)Banker’s Guarantee Facilities of up to an aggregate amount of AUD51.2 million
3)Short Term Loan Facility of AUD30 million
4)Account Receivable Purchases Facility of AUD8 million
5) Account Receivable Purchases Facility of AUD15 million

Sep 2016 - Noteholders agreed to
1) Extend maturity dates by 2 years to 20 October 2018
2) A partial principal repayment of at least $4 million
3) Interest will be paid monthly at a rate of 7.95% pa for the year ending 19 October 2017 and 8.45% pa for the year ending 19 October 2018;
4) Make-whole premium. If notes a redeemed earlier, a 9.45%pa on the principal is payable on the outstanding principal
5)Redemption premium - 10% capital gains on sale of ports is payable if redeemed earlier than 20 October 2018

May 2017 - MTN noteholders and Ezion was asked to do a debt-to-equity conversion at $0.058. This was at a premium of 6.62% above the VWAP ( volume weighted average price) of $0.0544 on 18 May 2017. Understandably, the acceptance was low, Ezion only accepted to convert $8 million ( out of permitted $42 million) of its debt to shares , while only $28 million worth of MTN notes ( out of $110 million) were converted.

Sep 2017 - MTN noteholders were asked again to do a debt-to-equity conversion at $0.058. This was at a premium of 21.8% above the VWAP of $0.0476 on 7 September 2017. 22 notes ( $5.5 million of debt) were exchanged to shares.

April 2018 - Ausgroup announced a proposed rights and placement of $0.035 representing a discount of 25.37% to the VWAP of $0.047 on 28 March 2018. This issuance could potentially raise $62 million in funds, out of which $21 million is allocated to redeeming the outstanding MTN notes.
These proposed rights and placement is conditional upon the MTN noteholder accepting a further restructuring of their debt.

Current NAV per share ( based on Q2 FY2018)= S$0.02
Current market price as of writing = S$0.035
Remaining estimated MTN noteholders loan after all the debt-to-equity conversions(estimated) = $71 million ( out of the original $110 million)

My thoughts about its relation to Hyflux

In the debt-to-equity conversion, VWAP is used as the basis for comparison instead of NAV/share.
In the Hyflux Townhall meeting, a lady actually stayed back after it ended and questioned why rights are not issued. The reply was that the equity is very low or the share price is already so low, so Hyflux can't do it. I will be looking ( if time permits) at other examples where a company with negative equity can still issue rights. My point is, Hyflux has not done everything it could, so it would be grossly unfair for any perps/prefs to take any losses before rights or placement is undertaken.

There is some form of reciprocity when the notes were restructed. When the MTN holder allowed the maturity extension, they were given an increase in coupon rates and they were paid monthly for the interest. Of course,Hyflux perps/prefs do not have any maturity based on terms, so there is no such thing as maturity extension. The point is Hyflux perps/pref should not only give but also take. For example, any reduction of distribution/dividends to the perps/prefs should be accompanied with a fixed redemption date. However, a fixed redemption date will turn it into a debt ( currently accounted for as equity), which would make the balance sheet look worse. So, the Hyflux perps and prefs have to think of what to take.

DBS sold to the MTN holders these notes. DBS also provides financing to Ausgroup. It leaves one to wonder if there is a conflict of interest since many of these financing is done on a secured basis and are thus ranked first in terms of priority. Risk is reduced for banks since many MTN holders would take the brunt of the losses before the banks. When Hyflux perps and preference shares are underwritten or advised by banks who also finances Hyflux, is this considered right, even if it may be legally right?

Further reading

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.

Further reading

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