HYFLUX Scheme Of Arrangement (SOA) : Yes or No ?

**Disclaimer : I have vested with $127,000 in Hyflux 6% CPS, my views and opinions expressed here might be biased to some extent, please do your own due diligence when acting or using the info as presented below.

image credit to businesstime.com

Bitter pill to swallow despite Olivia Lum's sweetener to small investors (18 Feb 2019)

 Hyflux's reorganisation plan will see heavy losses for small investors (17 Feb 2019)

 Hyflux's replies to Sias raise more questions ( 16 Feb 2019)

 SIAS's Hyflux rap: A wake-up call for corporate Singapore (13 Feb 2019)

 

SIAS queries Hyflux chief Olivia Lum and board on remuneration, operations (11 Feb 2019)

Finally, Hyflux unveiled the so-called Scheme of Arrangement under the court protection restructuring plan on 16 Feb which affecting more than 34,000 (mostly retail investors) registered holders.

“The 34,000 registered holders of Hyflux perpetual securities and preference shares, who are owed $900 million, will receive a total of $27 million in cash and a 10.26 per cent share of the reorganised company.

Under its long-awaited restructuring plan, filed with the High Court yesterday, unsecured creditors who are not holders of perpetual securities and preference shares will receive 27 per cent of shares, and a total cash distribution of $232 million.

This means that for every $1,000 invested, a holder of Hyflux’s perpetual securities and preference shares will recover just $106.54, or an implied return rate of 10.7 per cent - from $30.15 in cash and $76.39 of an implied value in Hyflux shares.

For medium-term noteholders, who are of a higher priority on the creditors’ list, the implied return rate is 24.6 per cent or $246.35 for every $1,000 invested. This is from  a cash payout of $138.72 and $107.63 in Hyflux shares.”

--Quoted from Straitstimes.com

Even with the reply from Hyflux’s BOD to questions raised by SIAS, many questions remained unanswered and unclear. Issues pertaining to dividend payout even in tight cash flow situation, divestment of HyfluxShop, asset’s valuation and auditors report, non-payment of coupons and dividend after announcing in SGX, the mandate of investing into non-core business (electric power generation) by BOD, no right issues and heavily rely on debts like perps & preference share/ MTN, justification and selection of SM Investment as "white knight"…etc.

One of their reply that really caught my attention as below :

"Today, however, due to oversupply of gas in the market, the projection by the Electricity Market Authority showed an increase in reserve margin to 80 per cent in 2018.

"The average wholesale electricity price has dropped from about S$220 per MWh in 2011 when the Tuaspring project was awarded to an average of S$81 per MWh in 2017, resulting in significant losses from electricity generation."

Wow!! Wholesale electricity price dropped by more than -63%, resulted loss of hundreds of millions from Genco, but we didn’t see our electricity bill down by 63%.

Yes, I know Energy Market Authority (EMA) has a very detail and complex set of the formula in setting the tariff and there is also other components in electricity tariff setting, as I blog about it before, there might be some missing parts as to why after the Open Market Electricity, we could enjoy up to 30% of saving from our electricity bill.

Open Electricity Market (OEM): I Switch You Switch, Save! Save! Save!

What happen to Genco while SP Power is making close to 1 Billion per year?

Could it be something wrong along the "supply chain" of electricity that some entity is getting too much “ rent “ and others suffered.

Ms Lum said: “Today is a happy day... Subsequently, we will have a lot of things to do. We will leave it to all the experts to work out a plan."

"I think today is a happy day. We just caught the flu. Like what Pak Anthony Salim just told me, 'Don't worry Olivia, you just (caught a cold), it's okay'. Because the entrepreneurship will still continue, and together with two big bosses here, Hyflux will have a lot of support."

Definitely not a happy day for all the 34,000+ Perps and Preference of shareholders!

Hyflux chief Olivia Lum 'deeply saddened' by losses suffered by investors, lenders (The Straits Times, 15 Feb 2019)

Yes, she should be! even with all the losses she made and donating the share subsequently, she is still a multi-millionaire and have a huge stake in privately own Hyfluxshop, also collecting fat pay till now.

What I am more sadden are those retirees (mom-pop ) retail investors who used their hard-earned CPF money to invest into the 6% coupon CPS.

Is getting 6% returns too greedy? I don’t think so, but Yes if you are talking about scams like 10-20% kind of returns per month.

Yes, STE deserved it and have to accept all the lost as I knew the cash-flow issue faced by Hyflux and my investment was more on speculative that betting the 6% CPS will be redeemed in Apr 2018. But I’m sure out of 34,000++ retail investors, there will be a genuine case, where someone who is not that savvy in investment analysis and not to mention about how to read the cash flow statement.

Remember that bond investors are not risk taker but rather they are “risk-averse”. I think it might be wrong to generalize that all Hyflux's Perps & Preference share investors are greedy yield-seeking investors while some may just try to get extra 2-3% points of returns over CPF interest rate, for their retirement under such, prolong low interest environment.

 

“Is Water a strategic resource or asset? Yes for the nation but No for investors “

Mr David Gerald had mentioned in a Townhall meeting that “ water is strategic and precious to Singapore’s investment.” …but at least now we know that it is for the nation but not investors.

Out of 34,000+ retail investors, how many really buy into the idea that “water is a strategic national resource? and invested into these Hyflux's MTN/Bond/Preference share?

Why Did So Many Singaporeans Invest in Hyflux - The Positive Image Illusion (from sgdividends.blogspot.com)

Photo taken by me during the first town-hall meeting, look at those attendants, mostly in “white hair “…sad story for those retirees who have invested their hard-earned money. $10-20K mean nothing for some millionaire but a lot for someone who doesn’t have much in their retirement.

How much did Hyflux board know when it okayed retail bonds? (The Straits Times , 19 Feb 2019)

“The authorities should look into how much the Hyflux board knew or ought to have known when it approved the issue of the final tranche of unsecured retail bonds”…

The Underrated Importance of Regulatory Risk – Hyflux(from sgdividends.blogspot.com)

Well, this is another issue that I really “underestimated “ it and it could happen to other asset class which are highly regulated by tariff or government policy. That’s also what happened to Telco when government announced another new entrant to the industry, massive destruction to the profit and price of these companies.

Bye Bye M1: Catching A Falling Knife (link)

What is Regulatory Risk? (by Investopedia.com)

How will I vote for this Scheme of Arrangement (SOA)?

All eyes and attention will be on 4^th April 2019 where the scheme will be voted by each  class of the debtor and also the shareholders, based on the affidavit filed by Hyflux on 15^th Feb.

I guess most of the Perps and Preference holders may think that 3% cash offer +some shares (6+%) may not be fair and enough. Yes, I do understand that “fairness” is subjective under such circumstances, you may get something or nothing.

When we feel something is unfair, we respond as if it were a threat and go into "flight or fight" mode. This is standard human behaviour under the influence of unfairness.

According to neuroscientist, the moment your brain determines someone is not playing by the rules, your abilities to deliberate, weigh all sides of an issue and make thoughtful decisions are impaired.

For my case, I may get $3810 + some New Hyflux share if I choose to accept the proposed scheme.

By logical thinking and rationality, I should accept the deal …but hey! I’m also an irrational investor same like anyone else, bounded to all sorts of irrationality and biases.

Expensive lesson learned.BTW, I have totally write-off my investment in Hyflux 6%CPS as per my previous update (here ). Thank God, with diversification and total net worth I have, I'm still OK and move on, but some may not be that lucky. 

May God bless them all !!

PS:

Is hard to predict the outcome of the voting at this moment as it involves a different class of debtors.

Senior unsecured bank and notes holders may vote yes as they will get the most out from this scheme (24.6-33.4  % ) depending on the contingent claim materialize amount. While Perps n Preference shareholders will most likely to vote "No", but the key is how to reach out effectively to thousands of small retail investors .....another challenge will be finding a venue for such BIG event involving thousands of investors.