What a finale. What a finale. On 3 April, I wrote that Hyflux saga is so bad that its good. The following day, Olivia Lum confounded investors by announcing the termination of a key restructuring plan with white knight, Salim-Medco consortium SM Investments. Prior to this latest turn of event, Hyflux investors had staged a public protest and planned to vote against the proposed rescue plan. But as the saying goes, Man proposes, God disposes. Apparently, Olivia had the last laugh.
Hyflux in doomsday path?
The latest twist is indeed stunning because Hyflux claimed that it has no confidence in SM Investments in completing the rescue deal and is currently seeking other potential investors. But what is even more bizarre is that Hyflux claimed that PUB’s intention of taking over Tuaspring Desalination Plant without seeking compensation would enable the firm to reach out to a “wider pool of investors”.
Make no mistake, Tuasping is an integrated plant consisting of both water desalination and gas turbine power plants. Obviously, it makes sense for PUB to take back the Tuaspring Desalination Plant from Hyflux because of water security purposes. As water is a strategic resource, Singapore will not want Tuaspring to fall into the hands of a foreign entity.
But it does not make sense to me when Hyflux claimed that potential investors would be more interested in investing in Hyflux now. After all, if PUB really did take back the desalination plant, who would want to invest in the loss-making power plant of Tuaspring? The key culprit for landing the water treatment firm in such a terrible state was the collapse of the oil price, which led to depressed electricity prices. For years, Hyflux had tried to sell off its Tuaspring Integrated plant in a bid to revert to its asset-lite business model. And now Hyflux is trying to woo investors with this ailing asset on hand. Who in his right mind will bite the bait?
While much public attention had being focused on the destiny of the Tuaspring plant, I would share my insights on Hyflux perpetual bonds and how they enabled the company to mask its financial weaknesses (legally). As many REITs and SGX companies issue perpetual bonds, the key accounting lessons may be applicable as well. Most importantly, I will also share the most important data investors must pay attention to when reviewing financial statements. Hopefully, this sharing will help investors avoid stinkers like Hyflux.
Dark side of Hyflux perpetual bonds
Many elderly investors had invested in the preference shares and perpetual bonds. In the event of a liquidation, they stand to get back nothing at all. I wish I do not have to write this but I think Hyflux investors should hope for the best and expect the worst. With the collapse of the SM restructuring deal, chances of a new white knight coming to the rescue is quite remote in my opinion. Thus, liquidation should be imminent. Of course, I hope that I am wrong because I do not wish the homegrown company going down in flames.
At the centre of the storm should be Hyflux perpetual bonds and how the company had used it to [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.]
In a bid to raise financial literacy and reward SG Wealth Builder members, I am pleased to launch the Best SGX stock research campaign. Winner of this contest gets to receive cash prize of $1000!
The rationale for launching this activity is to level the playing field for retail investors, who often lack access to quality SGX stock research, especially homegrown SME stocks. Through this SGX stock research campaign, I hope to raise interest in SGX stocks among local investors, and at the same time, encourage members to share ideas and showcase their analytic skills. The winning entry will be published in this blog for learning purposes.
The winning SGX stock research article must cover a stock that is listed in Singapore Exchange (SGX) and should be engaging and interesting to read. From a story-telling perspective, you can share your best or worst SGX stock investments and what valuable lessons that can be gleaned. Ideally, the article should also contain data to back up the thesis and provides insightful analysis.
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