Hi
@Empower, hope you been well. Here’s my 2 cents.
Similar Case Studies
1. Ezion converted almost all their secondary market bonds and perpetuals to 0.25%pa. The perpetuals are now trading at about 75% discount to par and their latest white knight Yinson (Malaysia) might request further debt reductions before helping Ezion.
2. Coincidentally, KrisEnergy also converted their former bonds to zero-rated and now trading at 75% discount to par. KrisEnergy continued to clock heavy losses and their management have exited, COO & CFO bid farewell two weeks ago.
3. Noble Group is the worst among them. After a massive haircut, their new perpetuals continued to tank and today, they are seeking money again.
https://www.tradewindsnews.com/drycargo/1732988/new-noble-seeks-financing-partners
Highlight 1: No investor is better off after the above deals. What went wrong? You see, these companies are not like Olam. The restructured zero-rated or low-yield bonds are effectively worthless and just buying time for the management to draw their paychecks. Such proposals are only worth accepting
if the bonds are guaranteed by respectable new investors (Eg. GLCs, Chinese/Japanese Conglomerates, or foreign sovereign funds)
OR there is a change-in-control of Hyflux and the new majority investor is highly-reputable (eg. Temasek taking over Olam).
Highlight 2: Do you notice that the above-mentioned,
did not convert their perpetuals to fixed-date bonds? Doing so, will make the balance sheet look bad if perpetual debts (hybrid-capital) are converted to liabilities.
Highlight 3: The Devil is in the details. When such proposals are made, think about who sacrificed along with you. In Noble, we saw investment banks bailing themselves out with funds from secondary bond issues.
Are the senior creditors of Hyflux granting similar debt extension at near-zero interests and you rank pari-passu with them?
Highlight 4: With more lawsuits from overseas, bankers, MTN group, and potentially from MAS/ACRA and retail investors, three-months make no difference. What they hint today, could be easily proposed a year ago. So ask ourselves why? What’s so special 3 months later? The next General Election is probably over in 3-months. We are sure that there is going to be a huge vote-swing with the pending GST hike, resale HDB price meltdown, losses in shipping, offshore & marine counters, TCB factor, etc. Every photo of the Hong Lim Park protest captured numerous white-haired retirees or former civil servants who are staunch supporters of PAP. There will be serious repercussions from the Hyflux scandal among the electorate and
offering these false hopes can limit Hyflux's impact as an election-issue.
Highlight 5: I think we will continue to see waivers of rights to pursue management and auditors for past wrongdoings. That's the whole point! In the last round, didn’t they offer us a token 3% cash-back in exchange for such waivers? Likewise they don’t even dare to face liquidation because it will open a can of worms. Still remember the Board of Director mocking us up to the very last weekend before the scheme voting?
Highlight 6: Of all people, why was SIAS given the honour to leak this announcement. Look,
SIAS is a whore, trying to stay relevant. They betrayed investors earlier by preaching repeatedly the acceptance of 3% cash-back in the media. They had failed to act in good faith, so in order to stay relevant, they get to do some intangibles, eg. break this piece of news. Simple as that.
What's the Ultimate Aim?
If you are a management staff of Hyflux, getting the waiver to cover your past misdeeds is your sole concern. For that to materialize, the restructuring needs to go through (not liquidation). Assuming that the earlier hindrance to the cramp-down on retail investors was the overwhelming NO-votes by MTN holders in senior class; the upcoming proposal is drafted with the objective of satisfying the MTN holders.
In Ezion's situation, their perpetuals are trading at about 75% discount.
HOWEVER their restructured bonds (used to exchange earlier ones) due 16 months later in August 2020 are trading at a just few % below par. https://www.bondsupermart.com/main/bond-info/bond-factsheet/UV3894705
In the same manner, Hyflux is likely to offer a 2-years low-coupon extension for their MTN bondholders. With just $250+m to repay within two years will be deemed an achievable target. This time, MTN holders will likely support in strength, and the restructuring will be through. Many naive retail investors will also cast supporting votes because financial engineering convinces them believe that there is no haircut on their PnPs (although Hyflux is likely to re-default when these longer-date debts are due).
What if God made Olivia repent during the Easter Weekend?
In life, I have seen too many bad and evil living happier and longer than many honest souls. I pray that the Almighty will sink the satanists. Olivia Lum had been a consistent liar and I have cited several reasons above, why today's announcement might be part of an elaborated scam to get her ass out of jail. Once she is convicted, it is definitely easier for retail investors and bankers to file claims against the board of directors for fraudulent practices. Fraud is more serious than negligence or oversight.
City Development has a 3.9% preference share (SGX Code: C70) listed on SGX for more than a decade. There is a redemption-clause but CDL almost made it a point that they will never redeem. If CDL redeem, they will pay you a significant premium over par (hinting you that they will not redeem) which will be opposed by ordinary shareholders. Of course CDL didn't issue this because they were in distress but it was for some special tax-waiver back then.
Assuming Olivia repented during the Easter weekend, she may be proposing a totally new (Non-cummulative, this time) preference share that Hyflux will never be redeemed, like the CDL NC Preference Share. Maybe we will get 5% a year, and it will take 20 years for Hyflux to repay the principal. Of course, then we have to pray hard that Hyflux will not collapse 20 years later but again, Olivia will probably be retired by then.
CONCLUSION
The management has nothing to lose with debt-extension. Even if they re-default a few years later after debt extension, management will have escaped or resigned by then. They are just doing this is avoid getting investigated or arrested. It is so obvious that there are false-accountings and misconducts involved but one can only speculate what's holding regulators back.
For retail investors, we are likely to be bombarded by new-found optimism in the media in the days ahead, so that Hyflux does not become an election issue.
We need to pass the message around. Therefore I wish to emphasize that this is likely to be another con job if the debt extension does not come with fixed redemption date guaranteed by a reputable new stakeholder.
Of course, Olivia Lum is smart. But we still have our common sense.
