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Friday, June 15, 2018

Uncovering the Real Motivations behind the HyfluxShop - Question 13

In my line of work , uncovering the motivations of individuals and organisations is vital. I can't possibly micromanage everything that an individual or organisation does. However, if i know that the motivations of the individual or organisation is aligned with mine, i guess i can worry less.

"I can calculate the motion of heavenly bodies, but not the motivations of Man."- Sir Isaac Newton ( modified)

The story so far

In February 2018, Hyflux issued unlisted HyfluxShop shares to ordinary shareholders (600), instead of the usual cash dividends.
Securities Industry Counceil ( SIC) has informed that Olivia need not have to make a compulsory offer to the ordinary shareholders (600) for the HyfluxShop shares.
Olivia( Chairwoman/CEO/Founder) voluntarily made an offer to buy over these HyfluxShares from the ordinary shareholders (600)

One possible opinion

Olivia( Chairwoman/CEO/Founder) is being nice to offer a choice to ordinary shareholders(600) a way to cash out from the unlisted HyfluxShop shares because there is no available market for it currently. She is also using her own personal funds to buy over these HyfluxShop shares.

Olivia is sharing a golden opportunity for ordinary shareholders(600) to take part in a promising unlisted company which will be listed later.

Olivia ( Chairwoman/CEO/Founder) is generous and is keeping to the tradition of being shareholder friendly by dishing out yearly dividends. Despite the cashflow problem of Hyflux, she is trying her best to give ordinary shareholders a dividend which she need not do so.

While i think the above opinions makes sense, may i be allowed to be the Devil's Advocate.

Being the Devil's Advocate

As stated in the circular (click here), the Net Tangible Asset ( NTA) of HyfluxShop is $20 million . See Figure 1 below.

This $20 million is used as the basis to calculate the $0.178 per share offered to the ordinary shareholders for each of their HyfluxShop.

At the point of offering, she has 23.8% direct interest ( or 54.2% direct and deemed interest) in HyfluxShop.
See Figure 2 below.

When she made a voluntary offer to buy the remaining HyfluxShop shares from the ordinary shareholders, the maximum she would have to fork out to 100% control HyfluxShop, assuming all ordinary shareholders sold their HyfluxShop shares to her was 76.2% ( 100% - 23.8%) of $20 million, which is $15.24 million. With 100% control, she can do anything she wants with the HyfluxShop and no one can say anything.

In fact, she didn't even need to spend a single cent at all to buy any HyfluxShop shares because she already controlled 54.2% (deemed plus direct) of HyfluxShop. However, this would not be optimal as the other shareholders still have the right to see the financial statements of the unlisted HyfluxShop if they want to and check on her.

Figure 1

Figure 1

Figure 2

Figure 2

The $20 Million HyfluxShop Preference Shares

In the circular, it is stated that HyfluxShop issued $20 million of preference shares to Hyflux.
The terms of the preference shares were:
1) No- voting rights
2) 6% per annum,
3) First call date 4 years later
4) Step up to 8% pa from first call date
5) no maturity date
6) Will not be redeemable at the option of the holders of HyfluxShop Preference Shares.
HyfluxShop may, at its sole discretion, redeem the HyfluxShop Preference Shares for cash

Sounds familiar?

The Alternative Opinion

Actually , this opinion is not mine alone.

In the business times article written by Marissa Lee on 14 June 2018, some questions were raised too.

Business Times

She has 100% control of HyfluxShop
Now, if Olivia managed to get 100% total control of HyfluxShop, she would have paid $15.24 million, but she would have gotten HyfluxShop with $20 million of funds through the HyfluxShop preference shares. ($20 million inflow - $15.24 million outflow = $4.76 million net inflow)

$20 million of funds that did not need to be repaid to Hyflux legally.

And if in the event that Hyflux winds up ( touch wood), it would be even more sweet because who is going to go the distance to ask for this $20 million back. Would Hyflux liquidators be able to get back the full $20 million? An unlisted company with no financial statements publicly available to scrutinise, who is going to check or who will care about what this $20 million is used for.

She does not have 100% control of HyfluxShop
Now, let's take the more likely approach which is Olivia does not get 100% control.
Would it make much of a difference? I doubt so.
Seeing how much the ordinary shareholders trust her through the years even when the financial statements and public announcements were mandatory made transparent by SGX, i shudder to think how much scrutiny she would get when transparency is much much less in an unlisted private company.

Conclusion
Hey SGDividends, didn't you read that Olivia has plans to list the HyfluxShop in future?
Well, plans are plans and are not obligations. Till i see it eventually listed, i would discount whatever is said or promised.

If HyfluxShop needs funds to grow and since it is stated as so promising, it can always do the following:

1) Issue preference shares or bonds to Olivia Lum personally at 6% pa
2) Get private equity or venture capitalists to invest
3) Borrow from banks

Why take from a company (Hyflux) which is already so cash strapped?
The reason i can guess is that Hyflux is controlled by Olivia so its easy to get funds from it.
Well, if anything happens to Hyflux, she can start afresh with HyfluxShop with no obligation to return the $20 million.

What would make me change by mind?
HyfluxShop to return the $20 million to Hyflux. That would immediately eliminate the alternative opinion.

Olivia, if you are reading this, may i suggest the following to improve people's opinion of you.
This is to align your motivations to the retail investors and to eliminate any mis-aligned motivations.
I am still hopeful you have good intentions.

1) Get HyfluxShop to return the $20 million to Hyflux to show that you do not have a back up plan for yourself.

2) Reduce your salary and your long serving board of directors by 71% or more to show that you have to make Hyflux a success before you reap the benefits.
If Ezion CEO could do it, you can do it.

3) In the long run if Hyflux survives, please get a succession plan in place for an outsider to run the ship. As professor Mak opined, you are an entrepreneur, not really a CEO as the results proof.

Which now leads me to ....

Question 13

Would you take my suggestions?

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
6)A happy ending for retail perpertual securities holders - Tiger Air and Hyflux
7) The Very Curious Case of Sharebuybacks- Hyflux
8)What did the founder/Chairwoman/CEO do to help hyflux throughout the years
9) Moving forwards at the Townhall meetings with Hyflux - Part 1
10) Moving forward at the Townhall meeting with Hyflux - Part 2
11)The Lucky Accredited Investors of Hyflux's Perpetual Securities - Part 3
12) The Peculiar Case of HyfluxShop - Question 12

Wednesday, June 13, 2018

The Peculiar Case of HyfluxShop - Question 12

I still don't understand why the CEO/Chairwoman/ Founder has to venture into HyfluxShop.

I mean, isn't the electricity market, the business in the middle east and being on the board of directors of ST Engineering enough on her plate?

Why do :

1) A dividend-in-specie of HyfluxShop,

2) An offer to buy over the HyfluxShop shares and

3)then within 3 months, suspend Hyflux and ask the court for protection?

CEO/Chairwoman/Founder Offer to buy Hyflux Shop from existing shareholders.

In summary, ordinary Hyflux shareholders ( code:600) were given a dividend-in- specie of HyfluxShop shares in January 2018. (See here). In February 2018, CEO/Chairwoman/Founder offered to buy over the HyfluxShop shares from the ordinary Hyflux shareholders.

Take note that HyfluxShop is unlisted and it wouldn't be unreasonable to guess that many Hyflux shareholders would accept her offer.

As of now, it is still unclear how many ordinary Hyflux shareholders accepted her offer. But, as of the offer statement by CEO/Chairwoman/Founder in February, she controlled 54.2% of HyfluxShop through direct and deemed interest.

A large shareholder in both Hyflux and HyfluxShop

As of February 2018, CEO/Chairwoman/Founder controlled about 34% of Hyflux and 54% of HyfluxShop, effectively having considerable influence in both entities.

Now, it was stated in the offer document that HyfluxShop has issued $20 million worth of perpetual securities to Hyflux at a rate of 6% pa with terms having an uncanny familiarity with the N2H and BTWZ ones.

This is certainly peculiar to my layman mind.

And the lucky draw of a BMW3 series and $150,000 of cash on the HyfluxShop pisses me off....is this where the $20 million went?
And you know what? Compare hyfluxenergy.com and myhyfluxshop.com to compare the very visible difference in allocation of capital to promotions.

Hyflux "lent" money to HyfluxShop with no obligation to pay back the money. ( Like BTWZ and N2H)

CEO/Chairwoman/ Founder exerts considerable influence over both entities.

Due to her offer of HyfluxShop shares ,she would control HyfluxShop considerably more assuming she gets many acceptance of her offer.

Let's say she gets full control of HyfluxShop such that it becomes solely hers, does she get the $20 million without the need to "return" it.

Since she is the largest shareholder of Hyflux, will she have the motivation to demand the $20 million to be returned?

Is this an arm's length transaction or a transaction with a conflict of interest?

I don't know as im just a layman with unqualified experience and just wondering.

Now to question 12.....

Question 12

How much of HyfluxShop does Olivia control now , taking into account the number of people who accepted her offer?

Will HyfluxShop become a completely independent Entity of Hyflux once she gets enough of the Hyflux shares and would she buy over Hyflux's stake of HyfluxShop too?

( I don't understand thats why i ask.)

How must HyfluxShop fare before the $20 million will be returned to Hyflux? How will we know since it's an unlisted entity and it's financial statements are not opened to public?

If Hyflux were to be liquidated ( touch wood) and cease to exist, will the $20 million need to be paid back?

Further reading

Saturday, June 9, 2018

The Lucky Accredited Investors of Hyflux's Perpetual Securities - Part 3

When i grew up, my mum always reminded me " Son, impression matters. Not everyone is going to get to know you better but they form a general opinion of you from what you do, say and wear."

I guess i didn't heed her advice, with all this messy posts with no clear direction and spelling/vocab mistakes. I would therefore like to make it clear that my agenda is purely monetary in terms of the capital invested, that's all. Nothing else. Like what the bank robber said ," Give me the money and no one gets hurt" kind of Caveman like mentality.

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.

The Lucky Accredited Investors

$300 million 5.75% Perpetual Capital Securities (ISIN: SG6OE1000007)
In 15 January 2014, these were issued to them in denominations of $250,000.
First reset is on 23 January 2017 and subsequent resets occur every three years thereafter.
I couldn't find the step up rates.
The Accredited investors who bought this had theirs redeemed on 23 January 2017. Lucky you!

$175 million 4.8% Perpetual Capital Securities (ISIN: SG6SC0000003)
In 21 July 2014, these were issued to them in denominations of $250,000.
First reset is on 29 July 2016 and subsequent resets occur every two years thereafter.
I couldn't find the step up rates.
The Accredited investors who bought this had theirs redeemed on 29 July 2017. Lucky you!

The Unlucky Non-Accredited Investors

$400 million 6% Cumulative, Non-Convertible, Non-Voting, Perpetual Class A Preference Shares (N2H)
In April 2011, these were issued to them in denominations of $1000 but a minimum of $10,000.
First reset 25 April 2018 and step up to 8% pa thereafter. See here.

Not redeemed on 25 April 2018.

$500 million 6% Perpetual Capital Securities (BTWZ)
In May 2016, these were issued to them in denominations of $1000.
First reset 27 May 2020 and step up to the initial spread at 4.20 per cent. per annum plus the step-up margin of 2.00 per cent. per annum. See here.

Not redeemed and even had its coupon stopped, even after being publicly announced and ex-coupon

Observations

Firstly, who are accredited investors. Read here.
In short, they are:
i) Individuals with a personal net asset in excess of $2 million;
ii) Individuals with an income of not less than $300,000 in the past 12 months;
iii) Corporations with net assets exceeding $10 million in value, in their most recent balance sheet;
iv) Trustees of trusts that the MAS approves; or
v) Persons that the MAS approves

Based on the dates of issue and redemption, it does give me an impression that retail, non- sophisticated really got the short end of the stick.
$500 million 6% Perpetual Capital Securities issued in May 2016.
I guess part of the retail investors money was used to pay back the Accredited Investors as their was redeemed on July 2016 and January 2017.

The unlucky unsophisticated retail investors in terms of the BTWZ got it worst with its coupon withheld.

Now, for .....................

Question 11
Why did the the board, in 2016 and 2017, when they redeemed the perpetual securities from the Accredited Investors , not have the foresight to not redeem them since their interest rates were so low at 5.75% and 4.8% respectively compared with 6% for the retail investor ones?

Wouldn't it be beneficial to hold a cheaper " debt" longer?

Can you give some colour on the step-up rates given to the Accredited Investors issue?

Can you shed some light on why there was a need to raise such funds from the accredited investors since Hyflux seemed to have excess cash to be able to conduct sharebuybacks in 2014 and 2015?

I don't know about you, but i'm left with a very bad taste in my mouth.

Further reading

Friday, June 8, 2018

Moving forward at the Townhall meetings with Hyflux - Part 2

Today my son reached out to my hand as i came back home from work. He tugged at my hand gently and placed his face next to mine. In his sweetest, angelic , softest voice he whispered into my ears " PaPa, i tell you a secret, I love you...."

Sensing the opportunity, i whispered back into his little ears" Son, i decimated your education fund.." knowing full well he wouldn't understand what i meant, and yet, offloading a heavy burden in my heart by confessing without any repercussions.....now for the Significant Other...Yikes ..

I echo what Mak Yuen Teen wrote.
I do think Hyflux is worth saving because it provides real value to society. It does have an obvious value proposition and real, hard assets that improves people's lives.

The issue is about the management and i reiterate what i wrote earlier, please step down to win the trust and respect of the public again. Hyflux will do better without you.

Question 10
In Annual report 2011 page 149, it stated (in red box), under Rationale for Shares Purchase Mandate "............ the Shares purchases will enhance the net asset value per share if the Shares purchases are made at a price below the net asset value per share......"

Figure 1: Page 149 Annual Report 2011

As stated on page 152 of AR 2011 below, the effect of the Net Asset Value per share before and after the share purchases has decreased from 60.6 cents / share to 50.2 cents/share (underlined in red) AFTER the share purchases.

Figure 2: Page 152 Annual Report 2011

Hyflux further states ( in blue box), "The Company intends to use it internal sources to finance the purchases of the shares.The company does not intend to obtain or incur any borrowings....."

Observations
It is reasonable to think that Hyflux , bought back shares through their daily share buyback programme while knowing full well that not only will it NOT ENHANCE the net asset value per share (NAV), it results in a destruction in value as seen above.

Sub-question 1
Can you provide other reasons for conducting Share buy backs that are more important than enhancing net asset value per share of Hyflux?

Sub-question 2
Based on the Shares Purchase Mandate, " ...protect existing shareholders' investments in a depressed share-price situation...", can you share how the management, when Hyflux bought the shares, believed that Hyflux was in a depressed share situation when its share price was significantly higher than its NAV/share?
Example: NAV/share in 2014 was 56.57 cents per share (based on Figure 4 below) and the average price paid in 2014 was $1 per share , 76% more expensive that the NAV. Large premiums were observed in the other years too.

Sub-question 3 Can you also share the metric that Hyflux uses to determine the true value of Hyflux when Hyflux did the share buybacks? This is because in the red box in Figure 1, it stated"Short term speculation...... depressed below the true value..."

Now,if Hyflux has no good reasons to justify that Hyflux was in a depressed share-price situation when the purchases were made, did the board follow the mandate?

Sub-question 3
Can you elaborate where these internal sources of funds ( in blue box in Figure2) come from to do share buybacks and how are these funds separated from the $400 million raised earlier in the year from unsophisticated, retail investors?

Since $400 million was raised externally from unsophisticated , retail investors through preference shares ( N2H) within the same year , essentially, a "borrowing", how can Hyflux be so clear to state that these sharebuy backs were internal sources of funds and there is no borrowing. Cash is cash, even if you separate it into different accounts, it still serves the same purpose.

Comparison between NAV per share and average price paid by Hyflux through share buyback

Figure 3: Page 4 Annual Report 2017

Figure 4: Based on company public announcements

As can be seen above, the average price paid per share has ALWAYS been higher than the Net Asset Value per share. Along the years, the NAV /share has been decreasing and along the years from 2011 to 2015, Hyflux has been doing share buybacks.

It is really distressing to me to see Hyflux buy the most shares when the shares were their average highest in 2012.

Conclusion
Let us put aside that there were about 20,000 unsophisticated N2H retail shareholders and another about 20,000 unsophisticated retail BTWZ affected by this incident who may have used their CPF and SRS funds. Let us also put aside the number of people who have invested in the ordinary shares (600) and who have given the board and management the mandate over the years.Let us also put aside the frequent sayings that the assets are strategic.

Why i think Hyflux deserves to be saved?
Purely because, it provides real value which we use and improves people's life. The issue is with the board of directors and management that has to be changed to save this company.

From Glassdoor reviews of employees who have worked in Hyflux these are some common statements. Please go read yourself.

(Please be mindful that these are anonymous posters, so do your own judgement.)

Leave you with some words of wisdom from an anonymous poster from the telegram group called King K.

"I always wonder - if A asks a question and B answers yes/no but it turns out to be wrong. A relies on it to his detriment as he doesn't bother to check himself. wonder if this happened to others before. Or does A rely on B's answer to be echoed by C D and E and if enough people say so, it must be so. I get how people can rely on other people's information as a starting point but shdn't A also try to verify it himself with a more credible source? wonder Wonder"

Further reading

Thursday, June 7, 2018

Moving forward at the townhall meetings with Hyflux

The past few days have been a pretty big eye opener from me. I have been sleeping well ( impt to me) ,engaging with some entities, waiting for answers, trying to 'read' the vested interests objectively using publicly available information ( links to the sources are referenced in my articles) , reading up on the electricity market and carrying on with my daily life, spending time with my kid and watching him grow up to be such a adorable and more and more lovable person.

This makes me wonder!

Expensive "tuition" fees have been paid ( probably a slight dent in my son's education funds..haha..Don't worry Papa will work harder) and now just to make sure that i learn as much from this episode and not let it go to waste.

Moving forward, im so eagerly looking forward to the townhall meetings with Hyflux BUT life beckons and work calls. I may not be able to attend.

So these are the questions i hope are being asked and of course if the interested parties are reading this obscure blog, it gives you time to prepare your nicely worded answers.

Question 1

Hyflux raised $400 million in funds from the non-accredited retail investors through SGX in 2011. It is stated ( here) that the funds are used for the water , infrastructure projects and for general working capital.

Why did Hyflux commence the daily share buybacks from Nov 2011 to Nov 2015, spending a total of $83 million?

Subpoints :

Did Hyflux board knowingly raised funds with the intention to use part of it to do a daily sharebuyback since the preference shares were offered in April 2011 and the share buybacks commenced not long after in November 2011?

If yes, why did Hyflux not fully disclose that these raised funds could possibly be used for daily share buybacks? ( Or if Hyflux did disclose, i couldn't find it. )

Question 2

Given that Hyflux operates in a capital intensive industry, what is the rationale for conducting the daily sharebuybacks ?

Based on the cashflow of Hyflux, Hyflux isn't getting much cash from its operations . It has in fact been negative every year since 2010.

(The effort for this diagram is fully attributed to the good folks at valueinvestasia, not me.

Thank you valueinvestasia.)

Question 3

Why didn't Hyflux conduct any equity rights issuance to raise funds, but instead chose to conduct a sale of preference shares and perpetual securities to retail investors who may have used their CPF or SRS account?

As a comparision, Ezion and Tiger Air conducted rights issuance to shore up funds.

Just some general knowledge.

Rights issuance result in the company issuing new shares, and if existing shareholders do not subscribe to the new shares, their voting power ( control) in a company decreases because the total number of shares in the market increases and they hold a proportionally smaller share of the total number of shares in the market.

Daily share buybacks have the opposite effect. Existing shareholders do not need to come out with any funds. The company will use its funds to buy existing shares from the market, thereby reducing the total number of shares in the market. Existing shareholders have more voting power(control) in a company as they own a higher proportion of the total number of shares in the market.

Question 4

Why did your proportion of Employee Stock Option as part of your compensation decrease along the years?

In other words, why did your compensation in cash increase along the years, given that Hyflux is in need of cash in a capital intensive industy and needed to raise funds from retail, non-accredited, unsophisticated investors, who counts retirees among its ranks using perhaps the CPF and SRS?

As a comparison, Ezion management reduced their compensation drastically.

Question 5

Tuas One is coming online in October 2018 based on filing with the Energy Market Authority. It will contribute about 136 MW of electricity. Will Tua-One be like Tuaspring in terms of being unprofitable?

Question 6

What is the rationale for some of the board of directors to be so long serving in the board?

Why is your role of CEO and Chairwoman not separated?

By acting as a CEO and chairwoman, together with a majority stake of 34% of the company and with long serving directors on the board, it seems that there is no check and balance in the company.

Question 7

Based on this article, it states that in 2011, Hyflux bidded for $0.35 per cubic metre while the next closest bid was $0.52 per cubic metre. The other bids were more than $1 per cubic metre.

Can you clarify if this is true? (The exact numbers are not important but rather the ultra low bidding is important in comparison with other bidders.)

If it is true or indeed Hyflux bidded very low, can you share what is the rationale?

If it is untrue, can you shed some light on the prices that were bidded for the project.

Question 8

What are the steps you are taking to save Hyflux?

As a comparison, Ezion management used their personal assets to secure funding and reduced their pay drastically.

Are you going to step down and seperate the role of chairwoman and CEO?

Are the long serving directors going to step down too?

Question 9

Why did you go into Hyflux shop and develop ELO water , and in the end, controlling Hyflux shop through the dividends-in-specie and offer?

Did you knowingly offer the dividends-in-specie when you know that Hyflux is going to be under a court ordered moratorium, as the dates of the events are so close?

Since dividends from Hyflux can only be paid if coupon holders of N2H and BTWZ are paid coupons, now that BTWZ ex-coupon which is payable on 28 May is stopped, could Hyflux shop be returned back to Hyflux.

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
6)A happy ending for retail perpertual securities holders - Tiger Air and Hyflux
7) The Very Curious Case of Sharebuybacks- Hyflux
8)What did the founder/Chairwoman/CEO do to help hyflux throughout the years

Wednesday, June 6, 2018

What did the founder/CEO/Chairwoman do to help Hyflux through the years?

As stated in my previous post, Hyflux sold $400 million preference shares (N2H) in 2011 to unsophisticated retail investors whom among them are retirees who used their CPF or SRS.
After which, Hyflux conducted a series of massive sharebuybacks starting in 2011 all the way to 2015 (except in 2013).

In 2016, sold another $500 million perpetual securities (BTWZ) to, again, retail investors. In total, a grand total of about $900 million in such securities. All this done within a capital intensive industry structure.

Throughout the years from 22 Mar 2012 to 14 March 2018, the number of shares of the Founder/CEO/ Chairwoman stayed the same. However, the percentage holdings of the company ( layman term: control of the company) increased from 31.53% to 34.05%. This is done simply by share buybacks, using Hyflux funds, which of course partially contributed by the preference shares and perpetual securities retail investors.

Compensation of Founder/CEO/ Chairwoman

Let us take a look at the compensation table.

Take note that the exact compensation given is unknown. Directors or senior management's compensation are given in bands. ( in blue)

At first glance, the bands seem to decrease over the years which follows the decline in Hyflux's share price. This looks reasonable.

However, do take note that the % of Employee Share Option decreased over the years from AR2012 to AR2017. While the % share of salary, bonus, fees , allowances and other benefits (in green) increases over the years as the share price drops .

Stop and think for a moment.

Would you want your compensation in employee share options or in cash if the company is not doing well?

Compensation amount in cash

In cash, i take it as the columns in green in the table above.
Namely, salary, bonus, fees, allowance and other benefits.

Look at the rows highlighted in red.

From AR2014 to AR 2017, the compensation in cash increases every year , from $683,500 in AR2014 to $875,000 in AR 2017 as Hyflux's shares decreases over the years and ending with a financial reorganisation in 22 May 2018!

100% in cash in AR2017!

I am truly disgusted.

Conclusion

From AR2011 onwards ( Annual report 2011), it can be seen that without paying for any shares, the Founder/CEO/ Chairwoman was able to increase her control of the company without any increase in the absolute amount of shares. This is done through the use of Hyflux share buybacks from the open market.

Money, totaling $900 million was raised from retail shareholders before and after these series of share buybacks. It must be stated again that we are talking about a capital intensive industry, a company without a strong cashflow which needed $900 million to be raised from non-accrediated investors who count among her ranks, retirees and many others who used their CPF and SRS.

Taken from Hyflux presentation . Click on the presentation

From AR2014 onwards, compensation in absolute terms ( in cash) of the Founder/CEO/ Chairwoman , has increased every year, culminating in a 100% cash in AR2017. At the same time, % in terms of Employee Stock Options decreased as the market value of shares also decreased.

Compare this with Ezion.

I rest my case.

600 investors who have voting power ( about 66%) need to exercise their voting power.

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
6)A happy ending for retail perpertual securities holders - Tiger Air and Hyflux
7) The Very Curious Case of Sharebuybacks- Hyflux

Tuesday, June 5, 2018

The Very Curious Case of sharebuybacks - Hyflux

In my previous posts, i wrote what management of other companies proactively did to try to save the sinking ship.

Ezion

- Proactively issued rights to access capital

- A drastic reduction in management compensation and doing more with less people

- Usage of family and personal assets as a collateral to gain more funds for the company

- Acceptable terms for perpertual securities holders ( Accreditated investors)

Tiger Air

- Proactively issued rights to access capital

- Capital injection by parent company

- CEOs who were changed along the way ( ok i didn't write this in my previous post)

- Redeemed retail perpetual securities at principal

Hyflux

How about Hyflux? I am actually very appalled that not only did they not issue any rights to raise funds, they undertook massive sharebuybacks across the years. I actually digged deeper and here are the various sharebuybacks.

Take note that in April 2011, Hyflux raised $400 million of preference shares (N2H) from the retail public ( not Accredited investors but unsophisticated investors, i must state again). And what did Hyflux do to some of the money, in November 2011, they commenced their sharebuybacks, up till 30 November 2015.

It is quite ridiculous that despite Hyflux knowing that they are in a capital intensive industry and despite having raised funds from unsophisticated,retail investors who have retirees among their ranks, they still undertook such a value destruction sharebuyback. Just look at the prices of the shares Hyflux bought back from the market at the 4 column.

And then having spent so much money on the share buybacks, they went to sell their $500 million perpertual securities (BTWZ) to again, a majority of unsophisticated retail investors in April 2016.

Why does Hyflux do sharebuybacks when they are not in the best position to do so?
If Hyflux do survive, i think its imperative for Olivia and her long time directors to step down for Hyflux to gain the trust and respect of the public again.

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

Monday, June 4, 2018

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.

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

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