The Simplified Resource for Everything Money

Saturday, February 9, 2019

The Underrated Importance of Regulatory Risk - Hyflux

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.

The effort to divest Tuaspring started in January 2017.
DBS and CICC Bank were appointed as advisors for the divestment exercise.
By August 2017, more than 50 parties had indicated an interest in Tuaspring and had been provided access to the information memorandum concerning Tuaspring following written approval to disclosure being received from PUB. This information memorandum provided high level information on the asset.
As a result of this exercise, the company received several preliminary non-binding bids, all of which were subject to agreement on the investment structure, regulatory and other approvals, and completion of detailed due diligence. Three of these indicative bids attributed an enterprise value of S$1.4 bn to the Tuaspring project. These came from a PRC SOE, a private UAE party and a subsidiary of a Singapore listed company.
However, these numbers were not final but subject to various conditions, investment structures and further due diligence.
To conduct further due diligence (which required obtaining access to more confidential information relating to Tuaspring) and to make a binding offer, an interested party needed to be approved by PUB to be granted access to such confidential information.
By May 2018, none of these parties had completed their due diligence processes, and the time required to complete such due diligence and receive an offer was likely to take a much longer period of time. With the weak electricity market not likely to recover in the near term, the Group will continue to suffer losses. As such, Hyflux decided to commence a transparent financial reorganisation supervised by the High Court of the Republic of Singapore.
The effort to divest Tuaspring continued in July 2018 through a collaborative sale process with the sole secured bank lender, Maybank.
Of the parties that had expressed an interest previously, only 8 requested to be pre-qualified by PUB.
Of the 8 parties, only 2 local parties were pre-qualified by PUB, of which 1 submitted a conditional bid in early October 2018.
This conditional bid would have been insufficient to repay Maybank.

Cut and paste from here

My thoughts on the above

More than 50 bidders, out of which 3 bidders attributed Tuaspring with a value of $1.4 billion

In my mind, im thinking, just how many other bidders attributed Tuaspring with a value of $1.3 billion, $1.2 billion, $1.1 billion or $1 billion, but were hindered, hampered, obstructed, discouraged or tired out by the arduous procedures so as to be approved by PUB, resulting in only 8 bidders left by July 2018?

It must be noted that the exercise started in january 2007 and Tuaspring was already bleeding millions of dollars each month and it seems this "thing" about getting PUB approval may have prolonged the process, culminating in a voluntary court protection in May 2018.

And out of the 8 bidders, only 2 local companies were pre-qualified by PUB to bid.

By then, with the voluntary court protection, i would think that these 2 local companies would take the opportunity to low ball. It was stated that the bid was insufficient to repay Maybank's loan ( roughly $500 million).

Did the need for PUB approval cause Tuaspring's value to plunge from $1.4 billion to less than $500 million?

For those unaware, Tuaspring was the "elephant in the room", the entity which brought down Hyflux. The only entity among Hyflux's stable of completed local projects that had an electricity generation component, and it was the excessively oversupplied, overcrowded electricity market we have here in Singapore for "who knows what" that resulted in the millions of losses each month. 8 million population projection as per Olivia Lum, perhaps? Does the Energy Market Authority (EMA) have anything to say about awarding so many licences, resulting in this oversupply of electricity?

The funny thing about it all is, after reading the above, one would think that PUB would only allow local companies in due to strategic concerns, right?

Wrong.

The Indonesian consortium of Salim and Medco seems allowed to bid for 60% of Hyflux, giving them control of local projects such as Tuaspring ( desalinated water and electricity), TuasOne ( Waste to electricity) , Singspring (desalinated water) and other assets in China and the Middleeast at a steal of $400 million for Hyflux group with a clean balance sheet.

( based on Indonesian's condition that they want a near debt free Hyflux group as they want the full and final discharge of bonds, preference shares, perpetual securites and existing bank loans)

Take note that this was said on 20 November 2018 by the minister.

So, whats happening?
Why did it seem that PUB did not approve foreign ownership of Tuaspring at the beginning but later mention that foreign ownership will not affect Singapore's water security?

If only the $1.4 billion value or even $1 billion value of Tuaspring had been realised, the 34000 retail investors of Preference shares and Perps, countless other Singaporean investors in their bonds and ordinary sharesholders wouldn't have to face nearly $2.8 billion of their investment, nearly wiped out.

A short video made by a member of the telegram group.

Another bomb to the retail investors of Hyflux

FILE YOUR PROOF OF CLAIM HERE

"Any party who is required to and does not file their proof of claim by 5.00pm on Friday, 15 February 2019 will (subject to the Proposed Chairman’s discretion) not be entitled to vote at the Scheme Meeting(s), and may not be entitled to any payments or distributions made pursuant to the compromise or arrangement that will be voted upon at the Scheme Meeting(s). In such event, all their claims against the Scheme Companies as well as all obligations the Scheme Companies have towards them will be forever varied, waived, released, discharged and/or extinguished in accordance with the terms of the said compromise or arrangement." - from Hyflux Announcement on 1 Feb 2019.

15 calendar days to file proof of claim.

It is extremely ridiculous to expect retail investors, whom many are retirees, to meet the timeline. Especially so, when a major holiday is upon us. While i think it is stated that those whose preference or perpetual securities are custodised with CDP do not need to file proof of claim, many have their shares custodised with CPF agent banks and nominee banks like Standard Chartered Bank. It seems these investors have to get their banks to file for them or else these investors 1) won't be allowed to vote and 2) have their claims forever extinguished. I wonder how accountable such banks will be if they didn't file for their customers. I guess nothing will happen, since there is little accountability in Singapore anyway, investors are passive and selfish to stand up for one another and banks should likely have those legal jargon that protects them from any accountability.

OCBC released a report and below is an image from them. Investors of Hyflux are awaiting the Salim restructuring proposal that has an indicative date of mid february 2019 to be released.
Creditors , perpertual and preference shareholders will then get to vote. It seems that if more than 75% in value vote in favour of the proposal terms, the Court is able to force the proposal terms on the rest who did not vote in favour. This is subjected to the following conditions. More than 50% of the voters who are present have to vote in favour AND the terms have to be fair and equitable to the dissenting class. What is considered fair and equitable i'm not sure ...do you know?

My Thoughts

The number of people present to vote is important, since both the value of shareholdings AND the number of hands are taken into account.
Given a tight 15 calendar days timeline and the Chinese New Year, is it reasonable to think that many people may miss the deadline, resulting in a low turnout?
Wouldn't it mean that the percentage of Olivia and board of directors' supporters present to vote will be higher?
And if their percentage is higher in terms of value and numbers of hands, wouldn't the proposal likely go through?
Does this seem fair or equitable?
Is this a ploy or is it not?
Is such a short timeline an industry practice? ( i vaguely recalled Ezra gave about 1.5 months for creditors to file proof of claim)
Where are the regulators? Who are looking out for the retail investors in Singapore?
Something is really wrong with my country.
Where is the accountability?

Home

Saturday, February 9, 2019

The Underrated Importance of Regulatory Risk - Hyflux

Saturday, February 2, 2019

Another bomb to the retail investors of Hyflux