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Sunday, March 10, 2019

The Wrong Impression of 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.

I think i have to correct the wrong impression that some people may have: that PnPs and unsecured banks/MTNs are sharing on a pro rata basis any of the upside that will happen if contingent liabilities were to be extinguished.

A short answer is there is some sharing going on. But actually its a NO. It is not on a prorata basis.

In my opinion, i think it can be quite misleading and many of the PnP mom and pop investers, especially the Pioneer or Merdeka generation may actually believe they are sharing with the unsecured banks on a prorata basis, making it seem fairer and hence making a wrong decision.

The percentages % stated below are all based on the cash component held in escrow account as a standby for the contingent liabilities only. However, the amount held in escrow account as a standby for the contingent liabilities comprises of both cash and shares and not cash only.

ScreenShot of the letter via email to SIAs Chief. This was shared in Telegram by an anonymous poster

My best-effort infographics ( Note: I am not a financial advisor)

Regarding the reduction of 20% to 10% for the management payout recipients. As in the letter above, the %percentage is again based on the cash component. This means the project leaders who are taking these incentives are not giving up half of their incentives.Instead, the management payout recipients got 72% ( 23.9/33.2 times 100%) of what they got originally , instead of half which many people thought instead. Read how this mainstream media writes about this. I think it gives a wrong impression, in my opinion.

My best effort Infographics ( Note: I am not a financial advisor)

When the letter writes "pro rata basis" between Unsecured Scheme Parties and Debt Securities Scheme Parties, this pro rata isn't pro rata actually. It depends on what is categorized under these two Parties. Now that contingent liabilities that are extinguished are to be shared among these two parties BUT these contingent liabilities are categorised under Unsecured Scheme Parties to enlarge their base. I reiterate again that contingent liabilities are not actual claims as they may not even happen at all. These contingent liabilities should not have been classified under Unsecured Scheme Parties in the first place at all because it "artificially" inflates their share of the extinguished contingent liabilities, from 53% to 65% and reduces the share for the Debt Securities Parties (PnPs) from 47% to 35%.

My Thoughts

I think its very unfortunate that a simpler way of providing the information was not given. It may also be construed by some skeptical people that it is meant to mislead the more helpless ones to think that this is even near to a fair deal at all. I think i will give Hyflux the benefit of the doubt.

A much simpler way of presenting these scheme has to be shown. This is important as the bulk of the target audience 34,000 of them have many many pioneer and merdeka generations among them. It is already a challenge to read in english or read at all given their poor eyesight for many of the chinese educated ones. To be honest, i have immense difficulty reading and understanding the letter too and had to re-read it many times and i am not a financial advisor.

I urge greater clarity from Hyflux with simplified terms so that many of the 34,000 can make an informed choice on the 5th of April .
I wonder why they planned it on Qing Ming Festival a.k.a Tomb -Sweeping Day,.
Maybe, it's a sign.

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

Saturday, March 9, 2019

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

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?