SG Wealth Builder

To make money. To build wealth. To preserve wealth.

Hyflux on course for horror finale

Email notification

Provide your email address to receive free articles and special promotion offers!

Join 6,602 other subscribers

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”.

Does Hyflux deserve a comeback like OSIM?

SembCorp Industries should invest in Hyflux

The holy water of Hyflux Perpetual Securities

Hyflux

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.]

Username
Password

» Lost your Password?

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.

Winning prize: $1000 

Eligibility:

  1. This campaign is open to existing SG Wealth Builder Members only. If you are not a member, please sign up here. Email subscribers are not eligible.
  2. Each SG Wealth Builder member is entitled to submit one article only.

Submission details:

  1. Each article must be at least 1000 words in Microsoft Word document. Must not be published at any platform before. Any article found plagiarism would be automatically disqualified. You do not need to provide infographic or images but if you do, they must carry the applicable licenses.
  2. Email your submission to [email protected] from 1 April 2019 to 31 May 2019. Late submission will not be entertained.
  3. In your document submission, you must provide your member userid or email address.
  4. The winning entry will be announced on 7 June 2019 and the winner will be notified through email. He/she must give the consent for the article to be published in this blog in order to receive the cash prize.
  5. In the event of a lack of quality submissions, there may be no winner. However, under such circumstances, consolation prizes may be given for entries that do not meet the evaluation criteria.

Not a member yet? You may sign up to become a member of SG Wealth Builder. The full benefits and privileges of SG Wealth Builder Membership:

  1. Access to the latest premium articles of SG Wealth Builder
  2. Email notifications of latest blog articles
  3. Participate in SG Wealth Builder campaigns
  4. Request for coverage on stocks, insurance and other personal financial topics
  5. Comment in articles and Wealth Forum

SG Wealth Builder Membership

You may sign up for the SG Wealth Builder Membership for only $15 per month. As a member, you can access all the articles, including the premium ones.

Note: After payment is made, you will be prompted with registration form to create your user-id and personal password.

Email notification

Provide your email address to receive free articles and special promotion offers!

Join 6,602 other subscribers

Cornerstone articles

Updated: April 17, 2019 — 9:05 am

1 Comment

Add a Comment
  1. Not sure about accounting today, but when I took a basic 1st year elective accounting module in Uni in 1990, preference shares & other perpetual securities were taught as equity, and to be treated as such, i.e. dividends not guaranteed, company doesn’t need to pay the dividends, company doesn’t need to redeem, if liquidation likely to get zero.

    There are some bonds, especially co-co’s or contingent convertible bonds, which are debts but market pricing can be “equity-like”. Rare or non-existent in Singapore market or Asian markets, but a favourite method of Warren Buffett especially when doing “rescues” of companies in need of cash.

    OCF and FCF were kinda made popular & got the attention of retail investors in Kiyosaki’s 1997 book Rich Dad Poor Dad. This was something new to me at that time, as my intro accounting module in Uni didn’t even cover cashflow statement, but only balance sheet & income statement.

    For me that insight was worth the time to read his book, which I felt was mostly rubbish, high risk high loss methods that were mostly applicable in US only e.g. non-recourse loans or mortgages — OPM, you cannot pay mortgage or the house valuation drop to less than what you owe >> becomes bank’s problem. Not in Singapore though! LOL!

Leave a Reply

SG Wealth Builder © 2018 Frontier Theme
Powered by WishList Member - Membership Software
%d bloggers like this: