Why is the Singapore Government turning a Blind Eye to over 50,000 affected shareholders, bondholders, perpetual securities holders and preference shareholders?
I wish to present three numbers:
Ref:
https://www.straitstimes.com/business/hyflux-perp-holders-and-preference-shareholders-owed-900m
- According to the above article, 60% of the 50,000 affected investors are owed $1.17billion (at least) = about $39,000 each
- The remaining investors & banks are owed at least $1.78 billion (at least) = about $89,000 each
- In another calculation, 34,000 retail investors are owed $900m in PnPs = about $26,500 each
Statistically,
many individuals are affected by a mid five-figured amount. As PUB issued further warnings about TuasOne (the last gem of Hyflux), after the confiscation of Tuaspring water plant, it is undeniable that NEA/PUB plays an essential role towards to survival of Hyflux. Hyflux has footprints in China, Middle East, Africa and Singapore's infrastructural projects. There are moral obligations for the government to intervene and help Hyflux and her investors. There is nothing to be ashamed about, to seek a government assistance because this is a symbolic local brand that sank with over 50,000 investors, and it is unlikely to be a money-losing venture for the authorities. The magnitude is massive if we include the dependents of these investors.
Retail-investor sentiments are hardly considered by the management, court or restructuring team because the retail investors are ranked last in debt seniority.
Proposed Solution
A government-linked company or stat board is the best steward for all parties to move on with the restructuring. The crazy LNG contracts are ending and biggest cashflows are from Tuaspring, TuasOne and Singspring. With PUB or NEA's blessings, this is a profitable venture for any government-back acquirer with minimal tweaks on the current contracts, and being a quasi-sovereign company, the cost of financing will be extremely low for Hyflux (improving profitability for debt repayment) and acquires Hyflux's global infrastructural assets at a discount.
Assuming that Hyflux faces $3bn of debts and seeks to reduce them to move on. The acquirer can propose to switch all debts into a zero-rated bond of 12 years maturity backed by the government-linked acquirer. (no coupon payment for 12 years).
Proposed Zero-rated Bonds
Par Value at Maturity: $100
Maturity: 12 years
Assumption Bond Price at Day 1: $25 (Maturity - Yield to Date 12.24%pa)
Assumption Bond Price at Day 1: $50 (Maturity - Yield to Date 5.94%pa)
Assumption Bond Price at Day 1: $75 (Maturity - Yield to Date 2.42%pa)
Assuming the creditors offloads everything at $25 (75% discount) to the acquirer on Day 1, effectively the acquirer only paid $750m to redeem ALL $3 billion debts. This is a very attractive deal, in all likelihood, the acquirer will happily queue to buy and strike-off these newly issued 12-years bond at 75% discount. There should be little panic-selling because other than the acquirer, new investors or insurers will love to buy these newly-minted quasi-sovereign bonds for >$50 because 5.94%pa is an attractive yield. Currently, a ten-years or perpetual bonds of our GLCs are just giving 4%pa.
These bonds will likely trade between $50-75 level for many years, which in on-par with similar debts in the secondary market. Affected bankers and individuals will have enough time to contemplate about offloading them to the open market or hold-till-maturity (for 100% capital return).
In return, the acquirer gets a majority stake in Hyflux's ordinary shares.
In fact, perhaps, the acquirer need not fork out much cash. Financial advisors will guide the acquirer to raise funds by issuing another batch of shorter-dated bonds to buy the zero-rated bonds at steep-discounts.
Eg. The acquirer issues 3-5 years bonds 2-3%pa (eg. similar coupon as GLCs such as Singtel, Capitaland or universities NUS, SMU) and use the funds to buy the zero-rated bonds at $25-50 level (5.94%-12.24%pa yield), translating to an immediate paper-gain due to debt-reduction.
A win-win for all, if the government is willing to help.
Thanks for reading.
