A happy ending for retail perpertual securities - Tiger Air and Hyflux

What happened to actual retail perpetual securities holder in beleaguered local listed companies? In my previous posts, the perpetual securities holders were not retail ones, but generally accredited ones who traded in the wholesale market. As of now, i can only think of Tiger Air which was delisted in 2016.

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 be clear again just in case, Tiger Air is in a totally different market. It has Singapore Airlines as its sponsor who in turn has Temasek as a large shareholder. Hyflux doesn't. What about the similarities, Tiger Air was burning cash, racking up massive losses in their Australia, Philippines and Indonesia ventures, over ordering of aircraft and going into debt.

Income statement of Tiger Air 

In the blue boxes, massive losses in 9 months FY2015 and FY2014.

Income statement of Tiger Air

Balance sheet of Tiger Air

In the green box, this is the amount of retail perpetual securities held. In the red boxes, it shows total equity and total liabilities respectively. 

As perpetual securities should really be a 'loan', the 'more accurate' total equity should be modified to (278,690 - 218,087) = 60,603.

Adding perpetual securities to total liability, it is modified to(218,087 + 679,218) = 897,305

Tiger Airway 31 March 2014 ( column highlighted with boxes)

Comparing Tiger Air and Hyflux modified liability to equity ratio

OKkkkkk.... Hyflux looks really bad. This is based on 31 March 2018 here. Please go and verify. As with Tiger Air, i subtracted the $900,000 perps ( BTWZ and N2H) from equity and added to liabilities ( Current and noncurrent). 

Tiger Air's capital raising activities
While the modified liability to equity ratio seems better for Tiger, it must be noted that unlike Hyflux, Tiger had been much more proactive in raising funds.
In summary:
1) 2011, rights issuance ,raising SGD158m @ SGD 58 cents per share.
2) 2013, rights issuance, raising SGD 76 m @ SGD 47 cents per share.
3) 2013, preferential perpertual securities issuance to existing shareholders, raising SGD218 m. ( On a side note, these were convertible ones and paid 2% pa for the first 5 years. Subsequently, it seems there is no guarantee, im not sure as i can't find the exact terms)
4) 2014, rights issuance, raising SGD227 m @ SGD 20 cents per share, with a further capital injection of up to SGD$140 million by SIA

Tiger Air IPOed in 2010 @ SGD1.50 by the way if you are interested to know.

Conclusion
The more i read, the more disgusted i am with Hyflux management. Hyflux had not done any rights issuance in history. In fact, i can only find daily buyback of their shares every year (except 2010 and 2013) from 2009 to 2015 ( latest 30 Nov 2015) This is absolutely ridiculous and is the opposite of what others are doing. Take note that rights issuance dilute one's ordinary shareholdings or to put it more laymanly, dilutes one control of the company.

Anyway, Tiger Air's retail perpertual securities holders had theirs redeemed at par in 2016 after SIA delisted Tiger with a 41 cents offer, before raising it to a 45 cents offer.

I am actually quite proud of the Securities Investor Association (Singapore) SIAS because they did speak up for shareholders about the 41 cents being not favourable. Singapore Airlines, in reponse to SIAS , justified its 41 cents price, before raising it to 45 cents.

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

Hyflux - Treatment of perpetual holders by Ezion

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.

I don't like to speculate what will happen. I guess it wouldn't be totally nonsensical to look at what happened to perpetual holders in the case of Ezion. Now, it should be noted that Ezion is in the oil and gas service sector providing liftboats, jack-ups et.c while Hyflux is generally in the water business. The perpetual holders in Ezion are generally accredited investors who are  more sophisticated than the N2H and BTWZ retail holders. In fact, the problems of Ezion is also, arguably, much more the result of market forces than Hyflux. Why do i say so, their customer segments are different and Ezion is affected more directly by world wide oil prices which affect many of their competitors too. Think Pacific Radiance, Ezra, Nam Cheong e.t.c. AND....I have something heavy in my heart to say but i shall reserve it for now, pending further clarification.

I am actually very impressed with Ezion management's pro-activeness.
To summarise,

1) Issued an equity rights exercise in 11 July 2016.
By doing such a rights exercise proactively when the share prices were still not crushed(yet), they showed they were willing to dilute their shareholdings.

2) Took a reduction in compensation since 2015. (See pic)
A heavy reduction of 19% in 2015 and a reduction of  71% in 2017 compared with 2014. Now, i would really feel they are trying their best.

Taken from Ezion investor relation

3) Used 100 million of CEO and family shares for support from banks. (See above pic)

Now, i can really feel the proactiveness and alignment here, so much so that in February 2017 ,in the midst of the mess, they could attain a $120 million 3.65% committed funding backed notes due 2020 from a bank. Long story short, if they couldn't pay back these notes, the bank would pay back first. This was rated Aa1 by Moody!

In addition, RSM Corporate Advisory Pte Ltd also agreed to take shares of Ezion as payment of their fees, at a price of $0.2763 per Professional Fee Share.

In case you forgot!

Now, i am wondering how much goodwill Hyflux has with her bankers and advisors. Hopefully, seeing Hyflux having contributed so much to our nation , with their yearly appearance on National Day, cleaning the water that the bankers and advisors drink everyday, ensuring the water security of our nation ( at a cost of bidding at such an low price), giving bragging rights for Singapore to show that it can build the largest desalination plant in S.E.A and be self-sufficient,  it all amounts to something in the end when Hyflux needs help.

But, the pro-activeness ( or rather lack of it) by the Hyflux management is pathetic. I have never seen an equity rights issuance by Hyflux as a source of funding.
Why? Is it because it will cause dilution?
As opined by Professor Mak in Today about the tenure of the directors and chairman, i absolutely agree with him.

From Annual Report 2017

Is the founder CEO and majority of directors so long in her position that no one would dare to oppose them?
Did they take a pay cut like Ezion's?
Did any of them willingly used their personal fortune to secure funding for Hyflux yet?
If ever Hyflux survives, they should all be changed.

To be fair to Olivia, she did seem to spend some money to result in a dividend in specie in February 2018. This dividend resulted in coupons having to be paid to BTWZ as without a dividend to ordinary shareholders, there was no need of a coupon payment to BTWZ and it would accumulate instead. But some people opined it was her way to separate Hyfluxshop from Hyflux as it had potential and she would have something in the end if Hyflux was liquidated. Anyhow, the BTWZ coupon is now not paid, so, no matter whether her intentions were good or bad, could we demand back the dividend- in -specie of Hyfluxshop from Olivia, since the BTWZ convenant was broken........ BTWZ have to be paid coupons if a dividend to ordinary shareholders was made. I hope the ordinary shareholders (600) sold it back to her.

Anyway, back to Ezion and it is my own interpretation which could be wrong.

Ezion perpetual holders could choose :
1)Series C Non-Convertible Bonds
10 years of 0.25%pa with a 5% redemption premium at the end of 10 years.
( funny i couldn't find the exact terms in the investor relations but could only rely on this)

OR
2) Amended Series 008 Securities ( majority based on value chose this)

7 years of 0.25% pa.
7th year 1.25%pa
Stepping up by 1% every year onwards.
There is no fixed redemption date
There were warrants attached which were convertible to shares at a certain price, though it was a conversion in blocks of $50,000 denominations , after which these will considered to be "redeemed".

Further reading :
1) Considerations about Hyflux
2) The fate of Hyflux
3)Will Hyflux recover? The billion dollar question