The Simplified Resource for Everything Money

Saturday, January 5, 2019

Where to find the money to pay back retail investors?- 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.

If you are still unaware, a telegram group consisting of Hyflux retail investors has been set up to facilitate communication. One can sense the frustration of retail investors from the messages posted. Every now and then, there are people who would offer good insights into what is happening. With such a long wait for the outcome and lack of concrete updates from the investor relations, it is little wonder that speculations are rife. Some even commented that since Hyflux doesn't seem to have much money, is it possible to claim from the professional indemnity insurance of the board of directors, advisors, e.t.c.

I received some questions from an anonymous member of the telegram group which i thought is good to share. These questions can be asked in the upcoming Townhall meeting on 18 January (Friday) and no, i did not email the Hyflux investor relations nor SIAs about these questions.

Question 1

Reference to your FAQ on your website, it was mentioned there was no default, no legal demand and that the filing was voluntary to proactive protect all stakeholders. If this was what your external advisors advised, should the outcome of this exercise result in significant cut or total wipe out of pref and perp value as compared to the last traded price, will management and BOD be willing to support stakeholders in making claims against your advisors since you have probably been misled into thinking that this is the best course of action? It is like you having a flu with slight fever of 37.2, your doctor prescribes a very strong antibiotic and after taking, you have an allergy reaction and went into coma. Wouldn’t the doctor be negligence since the risks probably outweigh the benefits?

Relevant article

https://www.hyflux.com/financial-reorganisation-exercise/shareholders-and-holders-of-securities/

Question 2

As per Singapore Standard of Auditing (SSA) 570 pertaining to going concern, auditor is supposed to assess company’s forecast over the next 12 months for the continual use of going concern assumption. With the company entering into a scheme within 5 months from the last financial year end date and 2 months from the audit report signed off date, what is the current status for the 2017 audit report. Is auditor affirming to their 2017 report or have the report been withdrawn? (Personal note, no need to ask HF – Shouldn’t ACRA, the regulator governing auditors start an audit on KPMG’s working paper too?)

Relevant article

https://isca.org.sg/media/777078/ssa-570-revised-july-2015.pdf

Question 3

In the first town hall meeting, it was mentioned that water contributes only 10% of TS revenue (Summary of the meeting at below link). Page 138 of the 2017 annual report, under discontinued operation put TS external revenue at S$174m. So, it is right to assume revenue from water is only S$17m in 2017?

Relevant article

https://secure.fundsupermart.com/fsm/article/view/14296/six-takeaways-from-hyflux-s-first-round-of-townhall-meetings

Question 4

According to announcement dated 11 April 2011, first year selling price per cubic of water to PUB was set at S$0.45. In view of this, should TS be making at least 0.45 x 318,500 x 365 days = S$52m from water sales annually?

Relevant article

http://investors.hyflux.com/newsroom/20110406_123709_600_40E33ED3154E853A4825786A00141CB4.1.pdf

Question 5

When is the date whereby TuasOne faces liquidated damage from delays in commencing operation and how much will the liquidated damages be?

Question 6

Noted that TuasOne has a 25 years deal with NEA, can you reveal the daily contracted incineration capacity? Do you have a committed 3600 tonnes per day from NEA? If not, what is the tonnage committed and for how long?

Question 7

Have the company done an impact assessment on the future incineration demand given the following factors?

- NEA reported daily solid waste at around 8443 tonnes a day and with the new TuasOne, a total of 3600 tonnes per day capacity will be added to the whole of Singapore.

- Sometime around 2025, a new integrated waste management facility will come online in Tuas with incineration capacity of 5800 tonnes per day. And

- Singapore is targeting a recycling rate of 70% by 2030 and what if this target is overshoot

How does the above impact TuasOne in securing enough waste for running the WTE plant at high capacity level?

Relevant articles

https://www.nea.gov.sg/our-services/waste-management/overview

https://www.straitstimes.com/singapore/environment/2-green-plants-to-improve-waste-treatment-efficiency

https://www.mewr.gov.sg/ssb/our-targets/resource-sustainability/domestic-recycling-rate

Question 8

During 2011, why HF did not enter into vesting contracts with the government and locked in the electricity selling price whereas most of the additional capacity are thought to have been build basis on LNG vesting contract?

Relevant article

http://singaporepowerdesk.com/loss-making-power-generation-sector-in-singapore-requires-bold-steps/

Question 9

What is the value of the power generation assets in Tuaspring? Alternatively, are you able to reveal the total price paid to Siemens? Back in 2011, industry sources have been quoting a figure of around US$500m for the power portion.

Relevant article

https://www.eco-business.com/news/hyflux-in-talks-over-tuaspring-power-plant/

Question 10

With 90% of TS revenue coming from power generation, does entry into power generation constitute major transaction which require shareholders’ approval? Did the company obtained shareholders’ approval prior, and If not, why is it so?

Under SGX Practice Note 10.1, 3.2.2 states that “However, should the acquisition change the risk profile of the issuer, shareholders should have an opportunity to have their say on the proposed acquisition. This is so notwithstanding that the acquisition will not change the main business of the issuer. Acquisition of the power turbine from Siemens forms a substantial part of the group assets and will change the risk profile of the group as exhibited by the current dire situation largely caused by exposure to the electricity market.

http://rulebook.sgx.com/en/display/display.html?rbid=3271&element_id=5634&print=1

Tuesday, December 25, 2018

The Unsecured Working Group (UWG) are against the retail investors - Hyflux

Based on the 15 Nov affidavit, the Unsecured Working Group ( UWG) consisting of 5 banks and representatives of the Medium Note Holders ( those who bought the wholesale bonds at 250k minimum), collectively known as accredited investors proposed the following for the perpetual securities and preference shares holders ( retail investors):

In addition to the above, there were other statements in the affidavit meant to put retail investors at a distinct disadvantage in receiving any recovery rom their investment .

Below are some quotes from the same affidavit.

My thoughts

It is like the rich vs the poor.
Not too long ago in 2016, the proceeds of the $500 million pumped in by retail investors ( perpetual securities) was used materially for the repayment of accredited investors of a total $275 million as stated in the Offer Information Statement. And accredited investors are now trying to maximise their recovery at the expense of the retail investors.
A classic example of why the rich-poor divide keeps widening. The retail investors are really the carrot heads here.

To add injury to the insult, i will like to highlight what i deem to be wrong about the Offer Information statement for the perpetual securities in 2016. Whether it is against the law or any regulation, i am not sure. But morally, to me , it is wrong.

In Feb 2015, Hyflux had a consent solicitation exercise with accredited investors. This is published in their investors relations website. The purpose is to:

Now, take this into context with an article published on Nov 2016 showing the various consent solicitation exercises undertaken by local listed companies before and where these companies are now at. Among the companies that have undergone consent solicitation are Rickmers marine, marco polo, Nam Cheong, Ausgroup..... It seems consent solicitation exercises are mostly negative.
Why would a company need to undergo a consent solicitation exercise to amend the terms of the original bond or security if nothing is wrong or nothing is going to be forseeably wrong in the future?

This consent solicitation exercise doesn't seem to be stated in the Offer Solicitation Statement for the perpetual securities.

So the question is:

Is the consent solicitation exercise a material disclosure in the Offer Information Statement ( Perpetual Securities) to the retail investors since it generally is a forewarning of danger?

Let's see where Hyflux could have inserted this disclosure. I don't think Feb 2015 is too long ago to be immaterial as underlined below, last 3 years seemed to be relevant.

Or Hyflux could have inserted it anywhere it deemed fit to cover themselves actually.
To me, a highlight of the consent solicitation, written in simple english preferably and the reason for such an exercise, without which, what will foreseeably happen should be disclosed.
As one can see from the timeline of the part 3 years, only the good or general stuff is shown.

So long story short,

Consolicitation Exercise done with accredited investors

Funds ( whose beneficiaries are materially the accredited investors) raised from Retail investors who are not informed of this consolicitation exercise through the offer information statement (OIS)

Funds used to repay accredited investors

Accredited investors now trying to maximise their recovery at the expense of the retail investors.

Saturday, October 20, 2018

My layman views on so called " white knights" of Hyflux

Overview

To summarise the major developments that rocked the world of only Hyflux stakeholders recently:

1) News mentioning that Hyflux received only one final bid for Tuaspring by a local company, Sembcorp which is not even enough to pay back the loan by Maybank. Since the loan by Maybank is in the range of $500 - $600, we know the upper bound of the bid. Many stakeholders are rightfully disappointed or angry that the market price of the bid is so low and naturally attributed this to non-market forces . The hindrance of PUB which only approved 2 local companies.

Link to news

2) The most recent news that an Indonesian consortium led by Salim and Medco group are interested in Hyflux.

Link to source

In short, with conditions being fulfilled, they would pump in $400 million to own 60% of Hyflux, shareholder's loan $130 million to Hyflux and before completion of the deal ,loan of $30 million as working capital rescue financing.

One of the conditions before the $400 million and $130 million pumped in is that there will be a full and final settlement of notably the MTNs, Perps ( BTWZ) and the Pref (N2H). It was also mentioned in the picture above under point 4.2 that " a proportion of new shares would be issued to certain creditors"

My layman view

1)Is this Indonesian consortium deal better off than Sembcorps bid of only Tuaspring which is below Maybank's outstanding loan as stated in the media? The exact amount of Sembcorp's bid is not revealed publicly. However, a good guesstimate could be gleaned from a CIMB report on 30 Aug 2018.

Hyflux's outstanding loan to Maybank as of End-June 2018 = SGD$658.6 million
Maybank's loan provisioning = SGD$106.3 million
Guesstimate of Sembcorp's bid = SGD$552.3 million

If 60% gets $400 million of Hyflux based on the consortium's offer, 100% of Hyflux will be $667 million.

If Tuaspring is bidded for $552.3 million by Sembcorp ( this amount is just speculation ) which if we use as a guage for it's market value, wouldn't it mean the Indonesian consortium valued the rest of Hyflux's assets ( Tianjing Dagang, Qurayat, Tuasone, Associated and JVs) at $667 - $552=$115 million?

2) Let's see from the position of MTNs, Perps (BTWZ) and Pref(N2H).

If Tuaspring is sold to Sembcorp and the money is paid back to Maybank and no further claims from Maybank. Hyflux's noose is gone and Hyflux should return to some profitability, possibly slowly returning the debts to its creditors. At least there is no known " full and final settlement" condition set.

However, if it is based on the Indonesian consortium's bid, and with the "full and final settlement" condition, it seems to me that if we would take the $400+$130-$30 = $500 million proceeds earmarked( worse case scenario, assuming no further top-ups from financing, further rights) that is going to be shared with the various creditors, it would be a massive, massive capital loss . The point 4.2, "proportion of new shares given to certain creditors" isn't going to be much also, since the new shares will be a proportion of the 40% of Hyflux, which amounts to $267 million market price based on the Indonesian consortium's bid.

So from my layman point of view, without further details and based on just assuming $500 million is all there is to be shared among the creditors plus some shares, out of the 40%, thrown in, i think it sucks.

3) How about from the position of the BOD ?

It would be far harder to keep Hyflux going if Sembcorp's bid ( based on only on news) is accepted instead of the Indonesian's bid.

Remaining in control is not valuable if the business environment is hard( considering a large bulk is in Middle East ) and needing to pay back the remaining MTNs, Prefs and perps. If Hyflux fails, salary is gone, shares is completely worthless. To pull through, BOD needs to work harder to get business.

It would be so much easier to accept the Indonesian consortium's offer, even at the expense of losing control. Indonesian can be the new market for Hyflux and that market is huge. With the consortium's backing and connections, the sky is the limit. I mean i would rather be a small fish in a big pond than a big fish in a small pond. Besides, i get to get my salary and my shares should recover, given such strong partners AND the balance sheet is wiped clean. And i would be given some Management Retention Shares some more.

Conclusion

Of course it is a happy day for certain people. But it isn't a happy day for the many others who invested their retirement funds, child education funds or CPF. A flu really trivializes the issue here and it is not a cold to many of us. It is years of toil, sweat and hardwork to earn those money that we placed into Hyflux. What about the statement :" I am still young and i will work hard for you" said during the Townhall? Is this, the easy way out, leaving the unsophisticated, helpless ones behind?

Home

Saturday, January 5, 2019

Where to find the money to pay back retail investors?- Hyflux

Tuesday, December 25, 2018

The Unsecured Working Group (UWG) are against the retail investors - Hyflux

Saturday, October 20, 2018

My layman views on so called " white knights" of Hyflux