Hyflux 6% Perpetual Securities

[justwakeup]

Taking over at zero cost does not make sense. Unless that facility is totally non-operational and it's worthless.

Which is what it is...ok, it is not totally non-operational, but u get what i mean

 

[makav31i]

Taking over at zero cost does not make sense. Unless that facility is totally non-operational and it's worthless.

The facility value is in the negative...Hyflux come and tell the press that it is a good thing that PUB is taking over at zero dollar and waiving the 25 year contract...PUB is just taking over operations of the desalination plant...The power plant at Tuaspring still under Hyflux...

If you are saying that Hyflux should be paying PUB for breaching the 25 year contract and the negative value on Tuaspring desalination plant, I don't see what does not make sense...

 

[eddy2099sg]

Taking over at zero cost does not make sense. Unless that facility is totally non-operational and it's worthless.

PUB taking over of the desalination plant at Tuas spring is not because hyflux is unable to pay Maybank or its other debts but rather tuas spring wasn't able to fulfill the contract agreement output levels.

I believe hyflux stated that it is unable to bring the plant to that required state as it didn't have the money to do so and thus asked for the extension till the next of this month in the hope that the votes which were supposed to happen were in their favour and they can use the Salim funds to pay for repairs and possibly pay for the change of filters.

If hyflux was able to deliver the water based on the contract agreement despite their financial situation, PUB would not do the takeover. I'm sure that if hyflux can pay or do the repairs with their current resources, all this wouldn't happen. So it shows that it is very expensive to get desalination plant operational.

The bringing tuas spring back to a workable state would probably cost money which hyflux does not currently have so the pub taking it over for $0 is fair as pub would incur all the cost in fixing the plant. So what PUB is ultimately paying is $0 + all the expenses needed to fix the plant up + all future expenses to keep the plant running. They may tender the operation or run it themselves but that's is something I do not know. Whatever it is there is cost involved.

It's pretty much like how some white knight would pay an debt ridden company for $1 and take over it's debts too.

 

[Soul77]

If you read Tony Fernandes Autobiography, he took over AirAsia for just $1 because it was bleeding millions every month.

 

[fr33d0m]

Taking over at zero cost does not make sense. Unless that facility is totally non-operational and it's worthless.

It does not matter what the operating asset is worth. The liability Hyflux owes PUB is more than whatever the asset is worth.

 

[fr33d0m]

Still cheap as compare to Israel where about 40% of its water is from desalination. Water cost there is US$2.55 vs ours at S$2.73 per cubic metre.

still got cheaper water from Malaysia and reservoir.

 

[tmkedmw]

@BBC

I say can be disruptive, I did not say will be disruptive. So stay cool.

I just open the Ministry of Finance PPP Handbook and read para 2.2.25

@BBCWatcher,

Quoted from Para 2.2.5 from the above MOF PPP handbook version 2, 2012:

2.2.25 As PPP is still in a nascent stage in Singapore, both the public and private sectors can learn from the experience in other countries to build up the competencies to not only structure a win-win PPP deal, but also to manage and sustain the long-term partnering relationship throughout the PPP contract

Also, allow me to quote section 2.3

2.3 STRUCTURING WIN-WIN PPP DEALS

KEY FEATURES OF WIN-WIN PPP DEALS

2.3.1 PPP projects must be structured to benefit both the public sector and the private sector. Specifically, the PPP deal must deliver value for money to government and also present commercially attractive business opportunities for the private sector.

 

[focus1974]

Cannot anyhow raise price lah.

If price too high, it will result in losing votes. If not enough water, also will lose votes.

So price must be moderate and reasonable.

Tax payers money must come in a little bit to subsidize for good water quality and proper water infrastructure.

https://www.titlemax.com/discovery-center/money-finance/affordability-of-water-around-the-world/

that's what you say..
but it has been proven ... time and again.. sinkies are willing to do it for the good of the nation!

ur transport cost keep going up ..while the bus companies are making profit..
how? Go and see how SBS Transit suddenly from loss making on the verge of nationalisation, it becomes ... a profit making company when govt steps in.

 

[focus1974]

it makes total sense because it was what was written in the contract years ago

if it didnt make sense then, why didnt people bring it up then ? Why now then bring it up? but actually some already did bring it up at that time but most didnt care anyway

2nd that..
when u sign contract, u never do due diligence ...
now got problem, u cry foul .

what's the point of a contract?

 

[makav31i]

@BBCWatcher,

Quoted from Para 2.2.5 from the above MOF PPP handbook version 2, 2012:



Also, allow me to quote section 2.3

Benefits does not need to be monetary benefits...Hyflux can use the success of Tuaspring which it does to win and bid for projects in China and Middle East...How is that not a benefit? Please point where exactly that the benefits need to ensure company is profitable? Or do you not understand the term "benefit"?

 

[jianlee]

...

Quoted from Para 2.2.5 from the above MOF PPP handbook version 2, 2012:

Also, allow me to quote section 2.3

Looking at MOF-PPP handbook quotes, it looks like PUB totally missed it with its PPP contract allowing them to takeover a water plant for zero dollar and on top of it, can still claim compensation?!

Termination of the water agreement should be bad enough. Only thing PUB loss out is buying cheap $0.45/m³ water from Hyflux.

 

[fr33d0m]

@BBCWatcher,

Quoted from Para 2.2.5 from the above MOF PPP handbook version 2, 2012:



Also, allow me to quote section 2.3

All bids are based on assumption.

hyflux's assumption went wrong, too bad.

I am sure that hyflux's bid proposal is win-win, otherwise, PUB could not choose it as PUB does not want to take over those plants unless necessary.

 

[Texas5ice]

Looking at MOF-PPP handbook quotes, it looks like PUB totally missed it with its PPP contract allowing them to takeover a water plant for zero dollar and on top of it, can still claim compensation?!

Termination of the water agreement should be bad enough. Only thing PUB loss out is buying cheap $0.45/m³ water from Hyflux.

The contract was signed. Hyflux put in a low bid to win the tender. Hyflux did their own calculations and deemed that the sale price of $0.45 per cubic metre to PUB is good for them. Any revision would be unfair to PUB ( there isn't a price revision clause) and those that participated in the tender but didn't win. Since the price is locked in for 25 years, Hyflux is contractually obligated to deliver water at that price for the duration of the 25 years contract. An early termination would cause the party breaching the contract to pay liquidated damages.

A calculation of just liquidated damages alone:

Tuas Spring is expected to sell 318,500 cubic metres per day to PUB at $0.45 per cubic metres. The 25 years agreement is from 2013 to 2038. Latest tender won by Keppel in 2016 for a similar project at Marina East has a WPA of $1.07867 per cubic metre.

Calculation for liquidated damages as follows:

($1.07867 - $0.45) x 318,500 x 365 x 19 = $1,388,604,724.325 which is $1.3886B*

Add in penalties for past breaches, easily more than $1.4B. If the case goes to court, PUB may not be awarded the entire $1.4B but $1B in liquidated damages is entirely possible. Actually PUB can and SHOULD take over the entire Tuas Spring for $0.

If you think that is unfair, I think you have absolutely no idea how contract works. Had Hyflux won the bid at a higher contract price and Tuas Spring is a very lucrative project, if PUB terminates the contract without just cause, Hyflux wouldn't be suing for the cost of building Tuas Spring. They would be suing for the price of Tuas Spring ( there will be a method to determine price of Tuas Spring depending on when contract is terminated) + liquidated damages ( profits that should have been theirs, had PUB not unjustly terminated the contract).

 

[Shion]

 

[w1rbelw1nd]

These guys are giving themselves false hopes. Sigh.

 

[Peasantboy]

Just a funny scene in my mind - imagine Hyflux wowing PUB with their innovative cross subsidy model that would allow Singaporeans to enjoy cheaper water (yay PPP) and the PUB Director turning to his underlings and saying “listen up you dullards, this is the reason why Singapore needs the private sector, this is private sector ingenuity and none of you could ever hope to emulate them”. Hyflux saunters out with fist bumps all around

Everyone wins until Hyflux bombs out with their assumptions.

The point is, is it PUB’s role to do the creative-entrepreneurial-profit in-depth checks for Hyflux?

I always felt that PUB should maintain water safety, water availability and water affordability for us as the regulator.

And the contract at zero compensation also protects against moral hazard. What if the winning bid came from a profitable company that felt operating and selling water was too low margin and capital could be deployed elsewhere? They could simply stop/reduce output of water and “force” PUB to buy them out at a great price (price floor). Could the contract be couched as it is to prevent such a scenario?

End of the day, this is not a Hong Kong drama with malicious civil servants trying to pull a fast one on a Singapore darling (if you’ve met any of these “dullards” I’m sure you would agree). Which civil servants’ bonus is tied to a hostile takeover of a water plant and the political fallout? I’m sure they rather have Hyflux succeed with their cross subsidy model, benefiting Singaporeans with affordable water. Win win win under the PPP.

@BBCWatcher,

Quoted from Para 2.2.5 from the above MOF PPP handbook version 2, 2012:



Also, allow me to quote section 2.3

 

[havetheveryfun]

The contract was signed. Hyflux put in a low bid to win the tender. Hyflux did their own calculations and deemed that the sale price of $0.45 per cubic metre to PUB is good for them. Any revision would be unfair to PUB ( there isn't a price revision clause) and those that participated in the tender but didn't win. Since the price is locked in for 25 years, Hyflux is contractually obligated to deliver water at that price for the duration of the 25 years contract. An early termination would cause the party breaching the contract to pay liquidated damages.

A calculation of just liquidated damages alone:

Tuas Spring is expected to sell 318,500 cubic metres per day to PUB at $0.45 per cubic metres. The 25 years agreement is from 2013 to 2038. Latest tender won by Keppel in 2016 for a similar project at Marina East has a WPA of $1.07867 per cubic metre.

Calculation for liquidated damages as follows:

($1.07867 - $0.45) x 318,500 x 365 x 19 = $1,388,604,724.325 which is $1.3886B*

Add in penalties for past breaches, easily more than $1.4B. If the case goes to court, PUB may not be awarded the entire $1.4B but $1B in liquidated damages is entirely possible. Actually PUB can and SHOULD take over the entire Tuas Spring for $0.

If you think that is unfair, I think you have absolutely no idea how contract works. Had Hyflux won the bid at a higher contract price and Tuas Spring is a very lucrative project, if PUB terminates the contract without just cause, Hyflux wouldn't be suing for the cost of building Tuas Spring. They would be suing for the price of Tuas Spring ( there will be a method to determine price of Tuas Spring depending on when contract is terminated) + liquidated damages ( profits that should have been theirs, had PUB not unjustly terminated the contract).

Good explanation.

At the rate technology was advancing in the past few years, there might actually have a possibility that water price dropped to $0.1 - $0.2 per cubic metre, and PUB would still be locked in for $0.45 per cubic metre, and Hyflux investors would be laughing to the bank.

It's a 2-way thing.

 

[boyinhersense]

Why the Telegram folks like to keep harping on PPP? Is it to make a point that Hyflux bid was so obviously mispriced and sure-lose that PUB should not have ‘taken advantage’ and let them win the tender?

If it was such a terrible business plan at the time, why would Maybank have set up a long term financing facility and lent Hyflux $500m?

Btw, it was mainly their money that built Tuaspring, not the mom and pop perps from 2016. The perp investor money went to paying back other noteholders and sustaining operating costs (losses).

 

[xd3vilx]

Moral obligation from Maybank? I don’t see any moral obligation of them sharing their 6% annual dividend to the public when times are good. I pity those old folks who have zero knowledge of investment but that got sweet talk into buying Hyflux. The rest, it is just greed.

 

[Tuckie]

@BBCWatcher,

Quoted from Para 2.2.5 from the above MOF PPP handbook version 2, 2012:



Also, allow me to quote section 2.3

I think that this means “structuring” of the ppp has to be fair. What this means is that the ppp should not be beneficial to the govt and detrimental to the private (for example, the ppp is such that profit goes to govt, and private bears the loss)

In this case, hyflux won the tender fair and square, by quoting a price they deem to be competitive, whatever profit they make off it will not go to the govt, but hyflux. Hyflux stands to gain from it IF their calculation is on point. Saying that the structuring of the ppp is not fair is wrong, it’s fair, if hyflux got its calculations right. This means that hyflux can only blame itself for its current state.

To add, as individual entities, the govt seeks value for money in the ppp, they award to the lowest bidder who can provide that service. The private entity seeks to maximize profit, hence they will and should put in a bid which can maximize their profit while ensuring they submit the lowest bid to win the contract. Both taken together, the private entity and the govt should reach a state where both these conditions are met through bidding, revealing the private entity’s preference. Hyflux in this case, probably have other plans in mind when bidding such a low price, and the govt is in no position to ask why they are bidding at such a low price if they are able to fulfil the requirement set forth.