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Saturday, March 9, 2019

Why I Am Still Voting No To The Revised Offer - 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.

On 8 March 2019, a revised offer to the retail perpetual and preference (PnP) holders was out. Read here. Straits Times wrote that the PnP holders are now able to get up to 7.4% in cash, meaning this 7.4% is not guaranteed and it is the best case scenario and the recovery may be lower than this. I am not sure how Straits Times calculated it but my calculation instead was up to 6.2% in cash, making the recovery for PnP 13.8% in cash and shares in the best case scenario.

Previous: Every $100 invested, get back $3 cash and $7.6 in implied share value ($10.60)
Now: Every $100 invested, get back up to $6.20 cash and $7.60 in implied share value ($13.80)

Why I Am Still Voting NO

Salim Group did not improve their offer in any way. The little pie is still the same and it is simply redistributed for the creditors and PnP holders to fight among themselves for the scraps. If one looks at the latest valuation of Hyflux post restructuring, based on the 1 March court affidavits. With the various creditors and PnP claims extinguished, the net asset value of Hyflux would be $1.1 billion. This means that Salim Group bought a company worth $1.1 billion at a price of $667 million in implied value. This means Salim Group will have a gain of 66% in implied value ( 444/667 multiply by 100%) post restructuring. It must be further noted that this $1.1 billion valuation is done during court moratorium, a distressed period and i would GUESS that the subjective assumptions or judgments used by the valuers would be very stringent such that $1.1 billion is a very conservative figure.

The retail perpetual shareholder invested $500 million in May 2016 and in May 2018, this $500 million is gone. Just like that, within two years. If Hyflux is liquidated, it would be easier to check the books of the company to see if there was any foul play. I was told that the Board of Directors and Olivia Lum would no longer have as much resources to defend themselves in such an instance. It seems also that third-party funding in insolvency proceedings is already allowed in Singapore and if Hyflux is liquidated, this could be an option. Source here. I am still finding out more on how this works and whether it is similar to the USA where lawyers don't charge a fee but will get a percentage of any proceeds that is won. Of course, the proceeds are from the director's insurance or personal assets now.

I am really dealing with incomplete information to make an informed choice. PUB has not commented on the compensation amount to Hyflux if they were to take over Tuaspring. It is very difficult for retail investors to make a decision when such material information is not released, with confidentiality always cited. This fiasco just cannot simply be a "commercial decision" and the oft used dirty word called "RISK" wantonly used to easily justify the loss of $900 million of 34,000 PnP investors and as much as 16,000 ordinary shareholders who are all mainly Singaporean Citizens. If disclosures would compromise the national security of a Nation, then perhaps PPP companies should no longer be allowed to be listed on an exchange and sold publicly since there is inadequate information to measure "RISK". What most investors are now thinking is : Could there be a higher recovery for PnP investors?. Accepting the proposal then would be destroying this chance, wouldn't it?

I am also very disgusted by our regulatory body SGX and MAS. How can a dividend of perpetual securities be announced and also past it ex-dividend date and still not paid? This is the first time i am hearing this thing happen in Singapore. The total amount is more than $14 million owned to Perpetual Securities . Shouldn't SGX and MAS mandate that all listed companies in Singapore ring fence their dividends once the ex-dividend date has been passed, by putting it into an escrow account? How is there a fair and orderly market since ex-dividend date is a material information and many investors do use this information to invest?

18 May 2018 - Ex-dividend date

23 May 2018 - Court protection seeked

27 May 2018 - Dividend payable date

Source

I hope i have been using my head for the 3 points above.

I have not even reached my heart yet.

Pay Cut and Clawback of Salary

When i am reading the affidavits and hearing from the ground, the staff morale in Hyflux is really low. Operational problems in other Hyflux projects has been mentioned by the mainstream media.

It is very disgusting to me that the employees have been right sized, rental footprint has been reduced, assets sold off however, I could not find any mentioning of any pay cut or clawback of salary from Olivia Lum or Board of Directors.

Despite calls for Olivia Lum to lead by example and reduce her pay since even before the first townhall ( based on what ordinary shareholders told me in their AGM) and repeatedly asked of her also during the every PnP townhall, she refuses. If one were to look at the dollar value of her salary only, one would say it would not make a difference to our recovery. I beg to differ. It does make a difference in staff morale which would eventually lead to higher recoveries.

A leader has to lead by example.

Just looking at the amount of contingent liabilities that Hyflux has if it does not complete its projects properly, one will understand the absolute importance of STAFF MORALE. I would also go as far as to say that the 10% ( previously 20%) of management recipient payout to incentivise the project management to complete their projects properly could have been saved or reduced if STAFF MORALE had been higher. And i wonder how much of this 10% will be distributed to the rank and file employees to boost their morale.

If one is able to accept such VALUES, i think it would be easier to Vote Yes. I can't, hence i vote NO.

Hyflux Telegram Group for PnPs and MTNs

I am very inclined to agree with this anonymous poster.

February 28 - SIAS issued a letter on behalf of PnPs asking for a little more

March 8 - Letter stating that there will be an improved recovery

I can't imagine how fast they can get all the parties together to revise the offer in such a short time.
It seems to me like a psychological play to make retail PnP investors think they won a victory.

But the key takeaway from all this is.
The PnPs retail holders do have the mettle to go against the big boys and this is a good development for Singapore. The general public who have been so vocal against the PnPs should ask themselves if they would like toxic securities , things that big boys don't want, to be sold to the helpless retirees and the mom and pop investors without proper safeguards in place and inadequate disclosures. Also, big boys have money and resources, naturally the odds are stacked against the retail investors.

Who are you actually supporting when you are vocal against the PnPs?

For PnP and MTN holders who wants to vote NO but are unable to attend the voting on 5th April 2019. You can fill up this form to proxy others. This has to be done by 31 March since 2 April is the deadline to give the forms to Boardroom, a Corporate Secretarial Company and some leadtime is necessary for the volunteers.

Click here to let others vote NO on your behalf

VOTE NO!

Click here to support the PnPs Online Petition

Thursday, March 7, 2019

The Curious and Disturbing Default Notice of PUB - Hyflux

Created by an anonymous person, not me, who shared in the Hyflux Retail Telegram group. PnP refers to the perpetual and preference share holders.

Desalination is one of the 4 National Taps of Singapore. The importance of water cannot be overstated and can be summed up in a quote from our Late Mr Lee Kuan Yew.

" Every other policy has to bend at the knees for our water survival. Water is a precious resource; without it you die. You can live without energy....But without water you dehydrate and die."

Quote from Lee Kuan Yew

Let us do the maths.

Olivia has stated that only 10% revenue is from water in the Townhall. You will have to plug in a earphone and turn up the volume to the loudest.

In annual report 2017, the amount of Tuaspring revenue is $ 174 million , so water revenue at 10% of revenue is $17 million.

It has been publicised that Tuaspring has a capacity of 318,500 cubic metre a day.

It has been stated in an article that the price of water in the first year is 45 cents per cubic metre sold by Hyfux to PUB.

Total maximum water revenue from PUB if plant is ran at the target capacity of 318,500 cubic metres per day , for 1 year :

318,500 cubic metres per day X 365 days X $0.45 per cubic metres = $52 million

$17 million / $52 million = 33% of max capacity

PUB has also stated publicly that Hyflux has failed to provide the required plant capacity on multiple occasions, and problems surfaced since 2017.

source here

Tuaspring is currently the largest desalination plant in Singapore and it is supposed to bring in 70 mgd ( equivalent to about 318,226 cubic metres which is nearly the same as the stated 318,500 cubic metres stated as the capacity of Tuaspring) . Out of the current 130 mgd of desalinated water that Singapore has as stated in the info-graphics below, Tuaspring makes up more than half of our current desalinated water supply. This makes Tuaspring the elephant in the room. A very important strategic project.

My Thoughts

It is very disturbing to me as a Singapore citizen that our water supply is not a strong as it seems to be protrayed. Tuaspring, which is supposed to provide more than half of our current desalinated water supply seems only able to produce 33% of its capacity, 105,105 cubic metres a day instead of 318,500 cubic metres a day.

It is very shocking to me that the problems at Tuaspring was already known by PUB in 2017 and yet this was not disclosed, citing confidentiality.

It was written in a Straits Times article titled " Parliament. Investors urged to take only risks they can live with".

In it, Minister Ong Ye Kung said" Risks are inherent in investment...." [Investors] " ......need to pay close attention to what is disclosed, look beyond potential returns and assess if they can also accept the risks that come with specific investments" See here for the full article.
The article ended off with " We will continue to educate the investing public on the trade-off between risk and return through the MoneySense programme," said Mr Ong.

I do not think the issue of this failed Public-Private-Partnership project which is Tuaspring that resulted in the loss of up to 50,000 retail investors is a matter that can simply be solved with more education. Neither is it a matter about the investors not paying close attention to what is disclosed.

Rather, the real problem is the lack of material disclosures which are swept under the category of confidentiality.
Even as of 7 March 2019, material information which is needed for retail investors to make a decision on the proposed restructuring is still withheld.

Source here.

How could the Hyflux retail investors make any informed choice when material information is not given, under the reason of confidentiality?

Why couldn't PUB disclose the operational defaults much earlier?

Why wasn't the revenue of Tuaspring segmented into electricity and water in their annual reports so that investors could see clearly that Tuaspring is actually a power plant in disguise, instead of an ancilliary power plant?

Why wasn't a shareholder mandate called for when there was a material change in business such that the risk profile of the Hyflux has changed drastically when a large percentage of their revenue is from electricity instead of their traditional water business ?

And to end off. I think that to calculate 33% as the operational output of Tuaspring may actually be very optimistic. This is because i used 45 cents per cubic metre which is the first year price in 2013. We do not know what is the actual price of treated water sold to PUB in 2017.

If we use a direct comparison approach with the 2 latest desalination plant that are in progress, the price of water sold to PUB is 91cents and 108 cents. Source here and here. Let's say the price in 2017 that Tuaspring sells to PUB is the average of the two prices at 99 cents per cubic metre.

The actual operational capacity of Tuaspring may actually only be 15% ( 47,045 cubic metres instead of 318,500 cubic metres a day). This is definitely a cause for national concern.

Minister Masagos in his speech in parliament in 2018 stated:

“Where we have allowed private sector participation via the DBOO model, safeguards are in place. PUB has adequate measures to ensure DBOO plants remain in operation and supply is not disrupted. It is a top strategic priority of the Government to keep our taps flowing.”
Source here.

Why wasn't the operational problems at Tuaspring highlighted then or earlier in 2017 during Parliament, since it is of paramount importance to the water security of Singapore?

I am even more determined to VOTE NO to the structuring which would risk a $0 recovery. This is because i think there are more problems that needs to be brought to light.
By accepting the restructuring, we, the retail investors, are condoning future instances of such cases to happen again in our country.
By accepting the restructuring, all may be buried and this is no good for the nation of Singapore.
My country and my home.

MERDEKA SINGAPURA!

And who gave Olivia Lum the 8 million** population projection as mentioned in first Townhall which resulted in her overconfidence to take on Tuaspring? Turn up the volume and use a earphone.
Be patient and wait for it.

**No replies for clarification has been received thus far from Hyflux Investor Relations.

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Saturday, March 9, 2019

Why I Am Still Voting No To The Revised Offer - Hyflux

Thursday, March 7, 2019

The Curious and Disturbing Default Notice of PUB - Hyflux