As a home-grown water treatment plant developer, Hyflux needs no introduction. The company enjoys strong brand name in Singapore but in recent years, the business fundamentals had declined. To raise capital, Hyflux had jumped onto the bandwagon of issuing perpetual securities.
In 2016, Hyflux’s $300 million perpetual securities were selling like hotcakes as wealth builders rushed to purchase them like holy water. In fact, the perpetual securities were so oversubscribed that Hyflux expanded the offering to $500 million. In this article, I will share my views on Hyflux perpetual securities.
The past 9 years had been a period of low-interest environment, driving investors to hunt for high yields investment instruments. The expansionary monetary policies in many developed countries had depressed bank saving rates and led to huge thirst among wealth builders hunting for yields.
Perpetual security had emerged as a form of attractive investment that yields lucrative returns. For those without active income, the prospect of having a fixed passive income that offers returns that are much higher than bank interest rates is simply a no-brainer, especially for retirees. But you must be fully aware of the risks before investing in such securities.
Typically, perpetual security is a form of hybrid bond that has features of both equity and debt features. Wealth builders must be aware that perpetual securities are not plain vanilla bonds.
First and foremost, as the name suggested, perpetual securities have no maturity dates. Because of this feature, investors are faced with long-term risk of interest-rate fluctuation. Currently, the interest rates are at all-time low because of the US Federal Reserve expansionary monetary policy. But when interest rates hike, holders of perpetual securities would be impacted.
Secondly, issuer of perpetual securities has the right, but not the obligation, to redeem the security. If the issuer does not exercise the redemption option, the only way is for the holders to sell [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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