Moving forward at the townhall meetings with Hyflux

The past few days have been a pretty big eye opener from me. I have been sleeping well ( impt to me) ,engaging with some entities, waiting for answers, trying to 'read' the vested interests objectively using publicly available information ( links to the sources are referenced in my articles) , reading up on the electricity market and carrying on with my daily life, spending time with my kid and watching him grow up to be such a adorable and more and more lovable person.

This makes me wonder!

Expensive "tuition" fees have been paid ( probably a slight dent in my son's education funds..haha..Don't worry Papa will work harder) and now just to make sure that i learn as much from this episode and not let it go to waste.

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.

Moving forward, im so eagerly looking forward to the townhall meetings with Hyflux BUT life beckons and work calls. I may not be able to attend.

So these are the questions i hope are being asked and of course if the interested parties are reading this obscure blog, it gives you time to prepare your nicely worded answers. 

Question 1

Hyflux raised $400 million in funds from the non-accredited retail investors through SGX in 2011. It is stated ( here) that the funds are used for the water , infrastructure projects and for general working capital.

Why did Hyflux commence the daily share buybacks from Nov 2011 to Nov 2015, spending a total of $83 million? 

Subpoints : 

Did Hyflux board knowingly raised funds with the intention to use part of it to do a daily sharebuyback since the preference shares were offered in April 2011 and the share buybacks commenced not long after in November 2011?

If yes, why did Hyflux not fully disclose that these raised funds could  possibly be used for daily share buybacks? ( Or if Hyflux did disclose, i couldn't find it. )

Question 2

Given that Hyflux operates in a capital intensive industry, what is the rationale for conducting the daily sharebuybacks ?

Based on the cashflow of Hyflux, Hyflux isn't getting much cash from its operations . It has in fact been negative every year since 2010.

(The effort for this diagram is fully attributed to the good folks at valueinvestasia, not me. 

Thank you valueinvestasia.)

Question 3

Why didn't Hyflux conduct any equity rights issuance to raise funds, but instead chose to conduct a sale of preference shares and perpetual securities to retail investors who may have used their CPF or SRS account?

As a comparision, Ezion and Tiger Air conducted rights issuance to shore up funds.

Just some general knowledge. 

Rights issuance result in the company issuing new shares, and if existing shareholders do not subscribe to the new shares, their voting power ( control) in a company decreases because the total number of shares in the market increases and they hold a proportionally smaller share of the total number of shares in the market.

Daily share buybacks have the opposite effect. Existing shareholders do not need to come out with any funds. The company will use its funds to buy existing shares from the market, thereby reducing the total number of shares in the market. Existing shareholders have more voting power(control) in a company as they own a higher proportion of the total number of shares in the market.

Question 4

Why did your proportion of Employee Stock Option as part of your compensation decrease along the years?

In other words, why did your compensation in cash increase along the years, given that Hyflux is in need of cash in a capital intensive industy and needed to raise funds from retail, non-accredited, unsophisticated investors, who counts retirees among its ranks using perhaps the CPF and SRS?

As a comparison, Ezion management reduced their compensation drastically.

Question 5

Tuas One is coming online in October 2018 based on filing with the Energy Market Authority. It will contribute about 136 MW of electricity. Will Tua-One be like Tuaspring in terms of being unprofitable?

Question 6

What is the rationale for some of the board of directors to be so long serving in the board?

Why is your role of CEO and Chairwoman not separated? 

By acting as a CEO and chairwoman, together with a majority stake of 34% of the company and with long serving directors on the board, it seems that there is no check and balance in the company. 

Question 7

Based on this article, it states that in 2011, Hyflux bidded for $0.35 per cubic metre while the next closest bid was $0.52 per cubic metre. The other bids were more than $1 per cubic metre.

Can you clarify if this is true? (The exact numbers are not important but rather the ultra low bidding is important in comparison with other bidders.)  

If it is true or indeed Hyflux bidded very low, can you share what is the rationale?

If it is untrue, can you shed some light on the prices that were bidded for the project.

Question 8

What are the steps you are taking to save Hyflux?

As a comparison, Ezion management used their personal assets to secure funding and reduced their pay drastically.

Are you going to step down and seperate the role of chairwoman and CEO?

Are the long serving directors going to step down too?

Question 9

Why did you go into Hyflux shop and develop ELO water , and in the end, controlling Hyflux shop through the dividends-in-specie and offer?

Did you knowingly offer the dividends-in-specie when you know that Hyflux is going to be under a court ordered moratorium, as the dates of the events are so close?

Since dividends from Hyflux can only be paid if coupon holders of N2H and BTWZ are paid coupons, now that BTWZ ex-coupon which is payable on 28 May is stopped, could Hyflux shop be returned back to Hyflux. 

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

What did the founder/CEO/Chairwoman do to help Hyflux through the years?

As stated in my previous post, Hyflux sold $400 million preference shares (N2H) in 2011 to unsophisticated retail investors whom among them are retirees who used their CPF or SRS.
After which,  Hyflux conducted a series of massive sharebuybacks starting in 2011 all the way to 2015 (except in 2013).

In 2016, sold another $500 million perpetual securities (BTWZ) to, again, retail investors. In total, a grand total of about $900 million in such securities. All this done within a capital intensive industry structure.

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.

All information contained in this page is taken from the Annual Reports. These are publicly available.
Please verify them.

Percentage holding of Founder/CEO/ Chairwoman

Lets look at the shareholding of the Founder/CEO/ Chairwoman throughout these years.

Throughout the years from 22 Mar 2012 to 14 March 2018, the number of shares of the Founder/CEO/ Chairwoman stayed the same. However, the percentage holdings of the company ( layman term: control of the company) increased from 31.53% to 34.05%. This is done simply by share buybacks, using Hyflux funds, which of course partially contributed by the preference shares and perpetual securities  retail investors.

Compensation of Founder/CEO/ Chairwoman

Let us take a look at the compensation table.

Take note that the exact compensation given is unknown. Directors or senior management's compensation are given in bands. ( in blue)

At first glance, the bands seem to decrease over the years which follows the decline in Hyflux's share price. This looks reasonable.

However, do take note that the % of Employee Share Option decreased over the years from AR2012 to AR2017. While the % share of salary, bonus, fees , allowances and other benefits (in green) increases over the years as the share price drops .

Stop and think for a moment. 

Would you want your compensation in employee share options or in cash if the company is not doing well?

Compensation amount in cash 

In cash, i take it as the columns in green in the table above.
Namely, salary, bonus, fees, allowance and other benefits.

Look at the rows highlighted in red.

From AR2014 to AR 2017, the compensation in cash increases every year , from $683,500 in AR2014 to $875,000 in AR 2017 as Hyflux's shares decreases over the years and ending with a financial reorganisation in 22 May 2018!

100% in cash in AR2017!

I am truly disgusted.

Conclusion

From AR2011 onwards ( Annual report 2011), it can be seen that without paying for any shares, the Founder/CEO/ Chairwoman was able to increase her control of the company without any increase in the absolute amount of shares. This is done through the use of Hyflux share buybacks from the open market.

Money, totaling $900 million was raised from retail shareholders before and after these series of share buybacks. It must be stated again that we are talking about a capital intensive industry, a company without a strong cashflow which needed $900 million to be raised from non-accrediated investors who count among her ranks, retirees and many others who used their CPF and SRS.

Taken from Hyflux presentation . Click on the presentation

From AR2014 onwards, compensation in absolute terms ( in cash) of the Founder/CEO/ Chairwoman  , has increased every year, culminating in a 100% cash in AR2017. At the same time, % in terms of Employee Stock Options decreased as the market value of shares also decreased.

Compare this with Ezion.

I rest my case.

600 investors who have voting power ( about 66%) need to exercise their voting power.

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