The next Lehmen Minibond Saga

[Hangover]

Zaobao Article: Hyflux racing against Time
http://www.zaobao.com.sg/finance/singapore/story20180226-838053

Ten years ago, the Lehmen crisis affected 10,000 retail investors in Singapore.
In comparison, Hyflux 6% Cumulative Preference Shares 2018 has over 20,000 retail investors based on the last annual report and an additional number exposed to Hyflux 6% Perpetual Bonds 2020.

The collapse of the Hyflux Preference Shares and Perpetual Bonds could be the third largest corporate collapse, second to that of the CLOB Saga & Pan-EL Crisis.

Illustration:
Hyflux is a like rich family owning several properties. They need to pay for an upcoming TOP condo (2018 preference shares) two months later (April), but they have not found a buyer for 1 or 2 of their existing properties (Tuaspring and Tianjin Dagang). Even if they can find a buyer now, the completion with property lawyer will takes 3 months which is late for the April payment of their new condo.

Rushing into a deal now, might not fetch good price for their existing properties.
Not getting a buyer now, means a technical default for the payment of their new condo.

Hyflux is not broke but in negative cashflow. Will Hyflux be able to obtain a bridging loan during the transition period?

 

[Hangover]

In an internal credit report released by an financial institution (which coincided with the crashing of Hyflux's Preference Shares and Perpetual Bonds, they has a neutral stance based on current prices because Hyflux is able to obtain cash to redeem the Preference Shares and Perpetual bonds by 2020, in other words, no point selling at current prices. it also mentioned that Hyflux's cashflow will improve from now because of the unwinding of their project portfolio/pipeline.

The preference shares and perpetual bonds are in distressed prices which are effectively throwing monies to new investors if Hyflux redeems that on April 2018 or 2-3 years later.

 

[no_faith]

They will approach prc buyers

 

[Hangover]

Implications of Hyflux's failure to redeem the April 2018 Preference Shares:

Retail Front
Beyond 2018, Hyflux will be paying a 8% coupon (based on $100 par value), instead of 6%. The preference shares have a cumulative feature, which unpaid coupons will be rolled over. Hyflux has the financial means to pay the coupons. While Hyflux can elect not to redeem, such decision will trigger a fall in prices which leveraged retail investors stand to lose more than their capital for an asset-class which was never considered to be high-risk.

Corporate Front:
Failure to redeem on first-call date (25 April 2018) is a technical default. Rightfully, if Hyflux makes the bold decision not to redeem, it will send shockwaves among Hyflux's creditor-banks; losing credibility forever. All these years, Hyflux is a highly-sought takeover target but Olivia Lum prefers to retain control and opted for debts-financing instead of diluting her stakes in exchange for capital. After a technical default, Hyflux has to take the path of Olam and eventually be owned by a GLC or risk having our major infrastructural asset falling into the hands of a major foreign company like CITIC, to resort credit-bank confidence.


Conclusion on Hyflux 2018 Preference Shares (based on $72 value now)
If Hyflux wants to retain their long-term credit ratings; as explained in the above implications, there is still a chance of redemption and vulture funds using this opportunity to make a quick kill.

• If Hyflux redeems their preference shares (at $100+$3 semi-annual coupon) on 25th April 2018, it translates to 40% return within 2 months ($31 return on a $72 bet) , or 240% annualized return.
• If Hyflux fails to redeem their preference shares on 25th April 2018, and assuming their redeem in 2020 (2 years later after assets disposal), it translates to a total accumulated payout of $100 + $19 coupons ($3+$8+$8), translating to 65% return within 26 months ($47 return on a $72 bet) , or 30% annual returns.

Either outcomes are good for the vultures.

 

[Hangover]

They will approach prc buyers

Perhaps, CITIC or her subsidiary.

It is estimated that Tuaspring accounts for appx 25% of our domestic water supply. Tuaspring is also a power plant.

 

[po2wq]

ah jinx got invest anot? ... if got, no worries la ... otherwise, ...

 

[batman1]

Will it go bust due to financial crisis like Konsortium?

 

[Hangover]

Temasek is not a major investor of Hyflux, but some of Hyflux former staff are now in Temasek/Heliconia.

 

[rotiprata]

dun know whether another swiber or not ??

 

[nayr69sg]

dun know whether another swiber or not ??

I hope so. Lol!

 

[Hangover]

Will it go bust due to financial crisis like Konsortium?

Three of the reasons for the selldown in their preference shares:

• Tight cashflow due to delays for asset-offload (regulatory approvals).
  
• Rumours of failure to redeem on April 2018 from financial institutions to trigger margin-calls of leveraged positions of retail investors
• The secondary market for $250K-lot transaction is almost non-existence in recent months, forcing investors to offload their positions by the thousands in retail market, triggering meltdown. About $400 million of the preference shares were issued but takes a little, eg. less than 0.25% ($1million) to send the prices spiraling down, triggering more margin-calls in domino effect. Retail investors can only key-in trades of 20 bids from last done (+/- 20cents) but financial institutions became the price-marker and subject the counter to wild multi-dollar swings at their will.

 

[nayr69sg]

Sure go bust. Just watch .

 

[Hangover]

Sure go bust. Just watch .

The way i read the events unfold is that, vultures are trying to push down prices and force retail investors offload cheaply to them. Many are using leverage for the Hyflux Preference shares and margin-calls will force these shares to be sold cheaply.

Just look at the yields when the vulture funds can harvest in April 2018 or 2020.

 

[Hangover]

dun know whether another swiber or not ??

Probably not. I read an report that stated "in addition, given sufficient time, we think Hyflux would be able to find a buyer for the assets which increase the probability of a call in 2020.".

 

[Hangover]

Sure go bust. Just watch .

Will be interesting if that happens. Let's look at the toll

Pan-El affected 5000 shareholders and forced SES to shut down
Lehmen brothers affected 10000 investors.
Hyflux has 20000 preference shareholders + X number of perpetual bondholders.

Hyflux has more preference sharesholders than ordinary shareholders based on the last annual report.

 

[borom]

Financially the biggest problem with Hyflux is that its over leverage.
Based on 2016 annual report, its Finance Cost is $62.4 million-- arising from Loans and Borrowings of $1.58 billion.
It also incurred "dividends" of $59million on perpetual securities ($295million+$495million)- for total borrowing cost of $121.4 million! This is an insane 47% of its gross profit of $257.6 million.
Its arguable that had it chosen to issue ordinary shares, warrants or rights ect2.it would have saved a huge amount of these borrowing cost.

 

[po2wq]

if victims dun involve his jingang of elites, dat loon burger wil tel ya ...

u wen in wif ur i's open ...

 

[Hangover]

Financially the biggest problem with Hyflux is that its over leverage.
Based on 2016 annual report, its Finance Cost is $62.4 million-- arising from Loans and Borrowings of $1.58 billion.
It also incurred "dividends" of $59million on perpetual securities ($295million+$495million)- for total borrowing cost of $121.4 million! This is an insane 47% of its gross profit of $257.6 million.
Its arguable that had it chosen to issue ordinary shares, warrants or rights ect2.it would have saved a huge amount of these boorowing cost.

Yes, Olivia Lum prefers to retain her control of the company, so she preferred debts than raising capital.
The management said that the next financial report will be out tomorrow night.

 

[JohnTan]

Yes, Olivia Lum prefers to retain her control of the company, so she preferred debts than raising capital.
The management said that the next financial report will be out tomorrow night.

I don't think Hyflux will sink. Olivia has the backing of the government and she is a good friend like Or Kim Peow. I understand that she is also a member of new creation church. Maybe some of Prince's grace luck will rub off on her.

 

[Hangover]

Results out within 2 hours

Just watch the Cash level.