A happy ending for retail perpertual securities - Tiger Air and Hyflux

What happened to actual retail perpetual securities holder in beleaguered local listed companies? In my previous posts, the perpetual securities holders were not retail ones, but generally accredited ones who traded in the wholesale market. As of now, i can only think of Tiger Air which was delisted in 2016.

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.

To be clear again just in case, Tiger Air is in a totally different market. It has Singapore Airlines as its sponsor who in turn has Temasek as a large shareholder. Hyflux doesn't. What about the similarities, Tiger Air was burning cash, racking up massive losses in their Australia, Philippines and Indonesia ventures, over ordering of aircraft and going into debt.

Income statement of Tiger Air 

In the blue boxes, massive losses in 9 months FY2015 and FY2014.

Income statement of Tiger Air

Balance sheet of Tiger Air

In the green box, this is the amount of retail perpetual securities held. In the red boxes, it shows total equity and total liabilities respectively. 

As perpetual securities should really be a 'loan', the 'more accurate' total equity should be modified to (278,690 - 218,087) = 60,603.

Adding perpetual securities to total liability, it is modified to(218,087 + 679,218) = 897,305

Tiger Airway 31 March 2014 ( column highlighted with boxes)

Comparing Tiger Air and Hyflux modified liability to equity ratio

OKkkkkk.... Hyflux looks really bad. This is based on 31 March 2018 here. Please go and verify. As with Tiger Air, i subtracted the $900,000 perps ( BTWZ and N2H) from equity and added to liabilities ( Current and noncurrent). 

Tiger Air's capital raising activities
While the modified liability to equity ratio seems better for Tiger, it must be noted that unlike Hyflux, Tiger had been much more proactive in raising funds.
In summary:
1) 2011, rights issuance ,raising SGD158m @ SGD 58 cents per share.
2) 2013, rights issuance, raising SGD 76 m @ SGD 47 cents per share.
3) 2013, preferential perpertual securities issuance to existing shareholders, raising SGD218 m. ( On a side note, these were convertible ones and paid 2% pa for the first 5 years. Subsequently, it seems there is no guarantee, im not sure as i can't find the exact terms)
4) 2014, rights issuance, raising SGD227 m @ SGD 20 cents per share, with a further capital injection of up to SGD$140 million by SIA

Tiger Air IPOed in 2010 @ SGD1.50 by the way if you are interested to know.

Conclusion
The more i read, the more disgusted i am with Hyflux management. Hyflux had not done any rights issuance in history. In fact, i can only find daily buyback of their shares every year (except 2010 and 2013) from 2009 to 2015 ( latest 30 Nov 2015) This is absolutely ridiculous and is the opposite of what others are doing. Take note that rights issuance dilute one's ordinary shareholdings or to put it more laymanly, dilutes one control of the company.

Anyway, Tiger Air's retail perpertual securities holders had theirs redeemed at par in 2016 after SIA delisted Tiger with a 41 cents offer, before raising it to a 45 cents offer.

I am actually quite proud of the Securities Investor Association (Singapore) SIAS because they did speak up for shareholders about the 41 cents being not favourable. Singapore Airlines, in reponse to SIAS , justified its 41 cents price, before raising it to 45 cents.

Further reading :
1) Considerations about Hyflux
2) The fate of Hyflux
3)Will Hyflux recover? The billion dollar question
4) Hyflux-Treatmeat of perpetual share holders- Ezion
5) Hyflux - loans and borrowings - Pacific Radiance

Hyflux - Treatment of perpetual holders by Ezion

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 don't like to speculate what will happen. I guess it wouldn't be totally nonsensical to look at what happened to perpetual holders in the case of Ezion. Now, it should be noted that Ezion is in the oil and gas service sector providing liftboats, jack-ups et.c while Hyflux is generally in the water business. The perpetual holders in Ezion are generally accredited investors who are  more sophisticated than the N2H and BTWZ retail holders. In fact, the problems of Ezion is also, arguably, much more the result of market forces than Hyflux. Why do i say so, their customer segments are different and Ezion is affected more directly by world wide oil prices which affect many of their competitors too. Think Pacific Radiance, Ezra, Nam Cheong e.t.c. AND....I have something heavy in my heart to say but i shall reserve it for now, pending further clarification.

I am actually very impressed with Ezion management's pro-activeness.
To summarise,

1) Issued an equity rights exercise in 11 July 2016.
By doing such a rights exercise proactively when the share prices were still not crushed(yet), they showed they were willing to dilute their shareholdings.

2) Took a reduction in compensation since 2015. (See pic)
A heavy reduction of 19% in 2015 and a reduction of  71% in 2017 compared with 2014. Now, i would really feel they are trying their best.

Taken from Ezion investor relation

3) Used 100 million of CEO and family shares for support from banks. (See above pic)

Now, i can really feel the proactiveness and alignment here, so much so that in February 2017 ,in the midst of the mess, they could attain a $120 million 3.65% committed funding backed notes due 2020 from a bank. Long story short, if they couldn't pay back these notes, the bank would pay back first. This was rated Aa1 by Moody!

In addition, RSM Corporate Advisory Pte Ltd also agreed to take shares of Ezion as payment of their fees, at a price of $0.2763 per Professional Fee Share.

In case you forgot!

Now, i am wondering how much goodwill Hyflux has with her bankers and advisors. Hopefully, seeing Hyflux having contributed so much to our nation , with their yearly appearance on National Day, cleaning the water that the bankers and advisors drink everyday, ensuring the water security of our nation ( at a cost of bidding at such an low price), giving bragging rights for Singapore to show that it can build the largest desalination plant in S.E.A and be self-sufficient,  it all amounts to something in the end when Hyflux needs help.

But, the pro-activeness ( or rather lack of it) by the Hyflux management is pathetic. I have never seen an equity rights issuance by Hyflux as a source of funding.
Why? Is it because it will cause dilution?
As opined by Professor Mak in Today about the tenure of the directors and chairman, i absolutely agree with him.

From Annual Report 2017

Is the founder CEO and majority of directors so long in her position that no one would dare to oppose them?
Did they take a pay cut like Ezion's?
Did any of them willingly used their personal fortune to secure funding for Hyflux yet?
If ever Hyflux survives, they should all be changed.

To be fair to Olivia, she did seem to spend some money to result in a dividend in specie in February 2018. This dividend resulted in coupons having to be paid to BTWZ as without a dividend to ordinary shareholders, there was no need of a coupon payment to BTWZ and it would accumulate instead. But some people opined it was her way to separate Hyfluxshop from Hyflux as it had potential and she would have something in the end if Hyflux was liquidated. Anyhow, the BTWZ coupon is now not paid, so, no matter whether her intentions were good or bad, could we demand back the dividend- in -specie of Hyfluxshop from Olivia, since the BTWZ convenant was broken........ BTWZ have to be paid coupons if a dividend to ordinary shareholders was made. I hope the ordinary shareholders (600) sold it back to her.

Anyway, back to Ezion and it is my own interpretation which could be wrong.

Ezion perpetual holders could choose :
1)Series C Non-Convertible Bonds
10 years of 0.25%pa with a 5% redemption premium at the end of 10 years.
( funny i couldn't find the exact terms in the investor relations but could only rely on this)

OR
2) Amended Series 008 Securities ( majority based on value chose this)

7 years of 0.25% pa.
7th year 1.25%pa
Stepping up by 1% every year onwards.
There is no fixed redemption date
There were warrants attached which were convertible to shares at a certain price, though it was a conversion in blocks of $50,000 denominations , after which these will considered to be "redeemed".

Further reading :
1) Considerations about Hyflux
2) The fate of Hyflux
3)Will Hyflux recover? The billion dollar question

Will Hyflux recover - the billion dollar question

I believe some investors are still in the state of numbness, while many others still believe that Hyflux is different from Noble  as Hyflux hold hard assets with strategic relevance to Singapore. Many others may not even know their investments are in trouble, especially those retirees.

How am i affected?I don't know frankly because i am still sleeping fairly well, but i am posting pretty fervently and finding out more. Its weird. I don't understand myself...maybe it hasn't sunk in. I don't know. But i certainly hate to lose money.

Anyway, is this a cashflow problem for Hyflux that is temporary and just needs time to heal or a structural one where Hyflux should just be allowed to fail. Let's not look at the assets Hyflux hold as a national strategic one, but rather through economic lens.

Problem
Hyflux problem started with the Tuaspring desalination project. I really hate to say this, but the following keeps glaring at me when i read about the projects Hyflux does.

Tuaspring
"Tuaspring Integrated Water & Power Project is Singapore’s first"
".....largest desalination plant in South East Asia.."

Tuas-one ( coming soon in 2019)
"TuasOne Waste-to-Energy Plant is Singapore’s sixth and largest waste-to-energy plant"

It feels like Hyflux loves to bite off more than it chew to please "i don't know who" to want to keep having buzzwords like "largest", "first" in their projects.

Hyflux is like in a start-up mode, taking projects which are unchartered and that they have not much experience. Hyflux ventured into the electricity business by way of the integrated power plant linked to the Tuaspring Desalination.

For me, i think Hyflux should just stop taking on such adventurous projects before amassing a large cash hoard.  They should instead just continue to do what has been tried and tested and earn recurring revenue from maintenance.

USEP prices 
From what i see in the investor announcement, the earliest i managed to search regarding Tuaspring is in 2011. See here.

I would believe the feasibility studies done to decide to built Tuaspring would have been done much earlier than 2011. But i will just show the average USEP prices from 2011 to 2018. Data is taken from EMA.

Read this first to understand why the USEP prices decreased.

It was during the period 2011 - 2013 where Hyflux secured funding for Tuaspring. In 2011 ,DBS, Mizuhi and Sumitomo Mitsui who together loaned $150 million. And in 2013, Maybank loaned Hyflux $720 million.  The average annual USEP prices from 2011 to 2013 was in the range of $214.5 to $173.2, making $173.2 the base at which i guess Maybank deemed Hyflux profitable enough to dare to loan such a large amount with i think,  a safety of margin.

Look at the average annual USEP price after 2012! It was the lowest in 2016 and 2017!

Compare the USEP price to the 5 year income statement of Hyflux.
In 2016, loss attributed to Tuaspring = $118 - $4 = $ 114 million
In 2017, loss attributed to Tuaspring = $ 116-$34 = $82 million

Relation between Loss and USEP 

Conclusion
Hyflux, without the Tuaspring electrical component would have been an ok company. Without the Tuaspring, Hyflux would have been a profitable company, though in 2017, why it suffered a loss of $34 million attributed to other businesses needs to be investigated.

So whether Hyflux can pay back the debts or even survive would really depend on the USEP prices in the future.

From simple linear interpolation, it would seem a USEP price of $127 would be the breakeven price for Tuaspring.

Further reading :
1) Considerations about Hyflux
2) The fate of Hyflux

Hyflux - where we stand

I think at this point of time, it would be good to know how much vested interest there is among the key stakeholders in Hyflux to help the preference shareholders ( N2H), perpetual shareholders (BTWZ)  and the ordinary shareholders (600).

It would also be good to know as a really rough gauge, how many people are affected. I should make it clear that this number is just a very rough ball park figure because some of the securities( N2H, BTWZ, 600) are held in nominee accounts which can hold for many different shareholders, information is based on public available information updated sometime ago, people buy and sell and rounding off errors.

Amount of money at risk for Hyflux directors

The following is the amount of money at risk for the directors. This information is taken from the annual report of 2017.

Number of affected shareholders

Based on the 2017 annual report, there are 20,104 (N2H) holders.
Based on the IPO allocation table, there are 23,868 (BTWZ) holders.
I am unable to find info the number of 600 holders.

N2H holders

BTWZ holders

Further reading :
1) Considerations about Hyflux
2) The fate of Hyflux

About rental car excess insurance - Apex vs Jucy - New Zealand holiday

Rental car insurance is a rip-off. Be careful of excess insurance reduction from rental car companies as the list of exclusions are difficult to interpret OR easily manipulated to fit into their definitions.

We have narrowed down 2 rental car companies that gives real value for money in New Zealand.
Apex car rental and Jucy. These are considered 2nd tier rental companies. 1st tier ones would be Hertz, Avis e.t.c who generally uses very new cars with little mileage but the prices are easily 20-40% more expensive.

Apex and Jucy prices their cars  roughly the same but here is why Apex beats Jucy hands down.

Roof damages

Apex Car Rental (top)

Jucy (bottom)

For full excess reduction insurance, it cost $20 per day for both companies. Apex will cover any roof damages, period. ( standard tncs apply). However, for Jucy, it doesn't cover any roof damages regardless of any circumstance . This was quite shocking to me as Jucy further elaborated that hail and falling of a tree branch, both being quite possible and through no fault by the driver, is not covered.

Claim Administration fee

Jucy also charges NZD 75 bucks per claim, irregardless of having full excess reduction insurance or not, or whether one is at fault or not, while Apex doesn't have such a fee. This fee by Jucy feels very ridiculous to me.

Authorised driver

Apex allows one to add authorised drivers for free while Jucy charges $2 per day, per additional driver. While this cost is not a deal breaker ,do note that the rental insurance is only valid if the driver was added.

Toll and infringement administration fee

Jucy charges NZD$60 for each toll/infringement claim incurred but Apex charges NZD$10 for each toll claim and NZD$25 for each infringement claim.

Opening an Australian bank account by a Singaporean

I have been getting some queries on my post on opening an Australian bank account. I guess the reason is because the aussie dollars have reached parity with the Sgd lately and people are becoming more interested.

I have kept my Australian account for about 2 years 5 months just purely for holidaying and have not been taxed a single cent on my interest income. I will summarise the way to avoid taxes legally or at least minimise the tax incurred.

1)  Put a non-Australian address ( a.k.a put your Singapore address)

If you put an australian address, maybe because you have an investment property there, the Australian Tax Office (ATO) will deem you a resident and tax your interest. As you are not working there, you have no tax file number ( TFN) and so will leave this field as blank. That's spells disaster!

The bank will, by default, charge you the highest tax of 46.5% on your interest earned.

By putting a Singapore address, your interest income is subjected to 10% tax.

2) Keep the total annual interest income lower than $120

With my National Australia Bank (NAB) earning about 2.5% pa annually, my full interest income will be taxed once the deposits reaches about $4800 ( interest is compounded monthly since interest is credited monthly so the threshold is actually slightly less than $4800) . 

Now, knowing this, i would open in my wife, father, mother, sister, helper, mother-in-law, father-in-law name, friend name, so that i have many accounts to squirrel into to be below the threshold. BUT, one need to be there in person to open. Haha... no free lunch!

3) Open the account in your children's name

The annual interest income threshold for a child is $420, which is deposits less than $16,800 ( the threshold is lower based on the reason i cited above). They still have to be there in person to open.

Anyway, i will gladly pay the 10% anyway if i were to invest in Aussie dollars while waiting for the commodities super cycle since, i will still be getting 2.25% pa NETT interest without the many hoops i have to jump across of local banks and the caps that each have. (UOB one, DBS multiplier, BOC smartsaver, Citibank Maxigain, SCB bonus saver).

Are you Return-focused OR Return on Risk Focused?

Taking the opportunity to sell into strength! Please go higher and higher!

Which would you rather pick? The bigger apple may not be better - Nasdaq.com

My thoughts about the Singapore property market

Everywhere i turn, i can't escape from someone getting a windfall from their enbloc sale. My parents, my secondary school friend, my client, my cousin and the newspapers. And i didn't. Horror of horrors!
The following are taken from SRX.
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Private property ( non landed) Sale - above and Rental- below index
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HDB Sale- above and Rental-below Index

_________________________________________________________________________________

1) For private property, the price is increasing but the rental is decreasing. Coupled with increasing interest rates, i wonder what is the fuel that will sustain the price increases? Euphoria borne from the spate of enbloc sales? 

2) HDB is following a more logical path, price goes down and rental also go down. And not all HDB dwellers are with a bank loan as they can take HDB loan. Such will be immune to interest rate rises going forward.

3) If HDB rental continues to fall, where is the "floor" to support private property rental rates?

4) I can see on hindsight how property prices continued its appreciation till 2013 as property price increases are coupled with rental increases. ( not to mention low ir).