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Monday, March 11, 2019

When Exactly Did Tuaspring's Operational Problems Start? - 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.

When PUB is asked about Tuaspring's water capacity in relation to operational defaults and you are given such an answer.

You know you are not dealing with a "commerical decision" anymore.

It came as a surprise to many when Olivia Lum mentioned publicly for the first time to retail investors at the Townhall that only 10% of Tuaspring revenue is from water while the rest is from electricity. However, this was only mentioned after the court protection, so even if any investor were to do his due diligence on this new information, it is too late as Hyflux is already suspended from trading. Listen to this recording again.

I think it is important to highlight some important milestone dates of Tuaspring, an Integrated Water and Power Plant.

July 2011 - Tuaspring contruction begins. source here

September 2013 - Tuaspring started treating water. The power plant was still being constructed. source here

March 2016 - Tuaspring's power plant went online. Source here.

This means that Tuaspring has already started earning revenue from treated water alone in 2014 and 2015 as the power plant only came online in 2016. However, i am unable to find disclosed information on Tuaspring's revenue in 2014 and 2015 in their annual reports or any corporate announcements on Hyflux website.

It is only in Annual Report 2017, where Tuaspring's revenue is finally revealed since Tuaspring is classsified as an asset for sale.

Finally Disclosed! Source

However, how much revenue is derived from electricity and how much is derived from water is still undisclosed. This information on Tuaspring revenue is still not helpful at all to the investor who wants to find out the actual water utilization of Tuaspring.

PUB's statement as per Straits Times

Multiple Occasions. Source

How Tuaspring's capacity is protrayed

Source

On Hyflux's website, Tuaspring's capacity is shown as 318,500 cubic metres a day.
I am unable to find any disclosed information on Hyflux website or corporate announcements that Tuaspring was required by PUB to treat any other capacity.

My Thoughts

An anonymous member in Telegram group provided me with the audited ACRA filings for Tuaspring. This filings showed the revenue earned by Tuaspring in 2014 and 2015.
Source here. You will have to pay up to $76 dollars to get these filings.

It is very ridiculous that i am not able to find this information on the corporate announcements of Hyflux or in their annual reports. Imagine if a company has many subsidiaries, does it require one to pay up to $76 for each subsidiary to check their statements to see what is wrong? Besides, how does a mom and pop investor even know what to look for!

As Tuaspring went online with the water business first in 2013, revenue from 2014 and 2015 should only be related to water revenue and not mixed together with electricity revenue like in 2016 and 2017 where the power plant came online.

From ACRA filings

Lets do the maths

According to this source, the first year water price that is sold to PUB is 45 cents per cubic metres.
Let's assume that this is the same water price in 2014 , 2015, 2016 and 2017.

Capacity of Tuaspring as publicly stated at 318,500 cubic metres:

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

Utilization of Tuaspring water capacity in 2014 (based on ACRA):

revenue from water = $13.3 mil

13.3 mil /52 mil = 25.6 % of stated capacity

Utilization of Tuaspring water capacity in 2015 (based on ACRA):

revenue from water = $18.8 mil

18.8 mil / 52 mil = 36.1% of stated capacity

Utilization of Tuaspring water capacity in 2016 (based on Annual report 2017 and 10% revenue from Olivia Lum):

revenue from water = 10% times 156 mil = $15.6 mil

15.6 mil/ 52 mil = 30% of stated capacity

Uilization of Tuaspring water capacity in 2017 ( as per calculations done before. Click here):

revenue from water = $17 million

17 mil / 52 mil = 33% of stated capacity

It can be seen above that the revenue from water and the capacity utilisation of Tuaspring is pretty consistent through 2014 to 2017, ranging from $13.3 million to $18.8 million revenue per year and 25.6% to 36.1% capacity utilization per year.

It must be noted that in 2014 and 2016, the derived capacity utilization is even lower than 2017.
Yet, PUB has stated that Tuaspring " has failed to provide the required plant capacity on multiple occasions". " The defaults started since 2017..."
But the utilization in 2014 and 2016 is even lower than in 2017!

Some questions naturally arises from here.

1) Did Tuaspring fail to provide the required plant capacity as far back as 2014?

2) If yes, why did Hyflux continue to sell the $500 million perpetual securities to retail investors in 2016 knowing that there was already something wrong with Tuaspring and it being more than half the asset value of Hyflux ? Why wasn't this material information disclosed?

3) Why did PUB only state that it occured since 2017?

4) Another possibility is that if PUB did not require Tuaspring to run at 100% utilization and instead run at a lower utilization with sufficient spare capacity as standby, just in case we need it, is this disclosed to investors? How will any investors cover their cost of investment if indeed this was the case? I am not sure if it is a coincidence but in 2015 when Tuaspring capacity utilization is at its highest at 36.1%, 2015 was also recorded as one of Singapore's top 10 driest years in history. Source here from government website. May this imply that the revenue earned by Tuaspring is also affected by the climate? Who would have known!

5) In a Straits Times forum post published on 19 Feb 2019 titled " How much did Hyflux Board know when they okayed retail bonds?" . Did they know already that the company would most likely be doomed to fail but still issued to mom and pop retirees who are the last to be sold a Hyflux toxic security?

The more one digs, its like opening a can of worms.

If material information is classified as confidential and not disclosed , how can any investor make any informed decision?

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

Sunday, March 10, 2019

The Wrong Impression of the Revised Offer - Hyflux

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.