Hyflux: 6% CUMULATIVE NON-CONVERTIBLE NON-VOTING PERPETUAL CLASS A PREFERENCE SHARE

[Guojing88]

I think preference share is very illquid, historically. So even the 6% yield is good, if investor need the cash and Hyflux does not redeem the share, investor will have to sell at market, usually at a very bad price.

I disagree with this. This is where knowledge of how bonds work will help. If bank interest rates remain as low as they are now, there is little reason to believe that this "very bad price" will occur.

Even if bank interest rates were to rise later, how much can it really rise? Certainly not above 5% in Singapore anytime soon. So there will still be a market for such a good yielding preference share.

The only concern I would have is the default risk, aka Lehman Bros style happening to Hyflux. It will be a drastic event if it happens. But at least we know we are next in line to be compensated after its creditors get their first cut of Hyflux assets, which I am sure the IP itself should be worth quite a sum.

 

[Pocoyoz]

LIM & TAN SECURITIES PTE LTD
COMMENTS
1. We do not find Hyflux’s CPS attractive:
- comparing 6% with, say, DBS’ last offer of 4.70%
is not appropriate. DBS is a bank, while Hyflux
does not have a credit rating;
- note that Hyflux Water Trust was privatized
in Aug ’10 at an implied yield of 6.9%. (78
cents; 2009 DPU of 5.42 cents per unit.)
2. Between Hyflux’s preference shares and HWT, we
would have found more comfort in the latter.
3. However, given the market’s ready and eager
acceptance of fixed income securities (eg investors
comparing Hui Xian’s IPO’s implied yield with yuan
deposit rates), we would not rule out at least full
subscription. (Hui Xian is being floated by Li Ka
Shing / Cheung Kong.)

 

[Mecisteus]

What I meant was the price of the PF shares (not Hyflux ordinary shares)
will crash back to the par value ($100, thereby losing any appreciation) when people got wind of any impending redemption.

yes im talking about Hyflux PF shares. it wont crash. just like bonds, the price will converge towards par value when maturity or likelihood of redemption comes

 

[WindBoi]

i seem to think this is a very risky ****. if you work in turn key project you would know what kind of **** it could occur.

 

[tkwei123]

yes im talking about Hyflux PF shares. it wont crash. just like bonds, the price will converge towards par value when maturity or likelihood of redemption comes

tat's where it gets interesting for this particular issue... as the interest get step-up to 8% after the redeemable date
So, let say, as 25Apr2018 approaches and hyflux have not make any announcement of redeeming.... wonder how the price will go??

 

[Garlic & Butter]

risk premium too high
i rather buy OCC 5.1% NCPS current yield 4.85%.. at least its non cumulative, guaranteed

the 1.15% extra for hyflux is not worth the risk, imo
the nature of hyflux business is very risky and my appetite isnt that big
although everyone knows the chances of going bust or missing dividends is very low

and this is cumulative.. i dont want to wait till year 2018 to get any dividends... by then.. dividends will be eroded by time value of money

 

[Garlic & Butter]

tat's where it gets interesting for this particular issue... as the interest get step-up to 8% after the redeemable date
So, let say, as 25Apr2018 approaches and hyflux have not make any announcement of redeeming.... wonder how the price will go??

thats easy.. u see what DBS did..
hyflux can issue new CPS at a lower rate or issue bonds, with the proceeds used to redeem the CPS

water projects are very capital intensive and any cash inflow takes a long time to come in after initial outflow

 

[Mecisteus]

tat's where it gets interesting for this particular issue... as the interest get step-up to 8% after the redeemable date
So, let say, as 25Apr2018 approaches and hyflux have not make any announcement of redeeming.... wonder how the price will go??

anyway those who hold the PS and decided to hold till maturity do not need to worry about market prices

if Hyflux redeems, these investors get 6% now till redemption. if Hyflux dont redeem, these investors get 6% now and 8% after 2018.

only those who dont intend to hold till maturity will worry about interest rate movements and speculate about redemption.

personally, i say its not a bad deal if you are risk averse. if you are aggressive, go for the hyflux ordinary shares instead

 

[Mecisteus]

thats easy.. u see what DBS did..
hyflux can issue new CPS at a lower rate or issue bonds, with the proceeds used to redeem the CPS

water projects are very capital intensive and any cash inflow takes a long time to come in after initial outflow

thats provided interest rates at that time of new issue is lower than now. can it go any lower?

DBS scenario was different. it was 1st issued at high interest rate. of course, when interest rate falls, they issue new one

 

[Pocoyoz]

can tikam sell on 1st day?

 

[limster]

risk premium too high
i rather buy OCC 5.1% NCPS current yield 4.85%.. at least its non cumulative, guaranteed

the 1.15% extra for hyflux is not worth the risk, imo
the nature of hyflux business is very risky and my appetite isnt that big
although everyone knows the chances of going bust or missing dividends is very low

and this is cumulative.. i dont want to wait till year 2018 to get any dividends... by then.. dividends will be eroded by time value of money

I agree with your analysis. The 1.15% extra return is not enough to reward me for the additional risk taken.

Coincidentally, many analysts have issued 'neutral' ratings on SPH, if SPH price drops, it's a good buy, and dividend is likely >6%

 

[Garlic & Butter]

can tikam sell on 1st day?

see the IPO demand?
again this hyflux is not a bank.. so there may not be so many followers
FYI DBS 4.7% opening $101, closing $102.60
not bad.. after 2 days, you earn up to $260 for a $10,000 initial investment


still need to see the dividend policy before making a decision... if its only their intention to CD only in 2018 then

 

[koxinga]

my first thoughts were "6% yield, cumulative some more!" but then again, I think a little bit further and wonder whether Hyflux can generate that much cash to support this level of yield.

I mean, why come up with such a instrument? Debt instruments or bonds seems a better idea in a low interest environment than borrow money from investors, unless bank don't dare to lend anymore. HF is a very leveraged company now. It's a bit like borrowing money from the public at ah long rates and promising big future returns.

 

[henrylbh]

Was wondering why the company issue such high interest rate PS. Might as well go for rights issue and definitely can raise much more money without obligation of paying 6% dividend annually unless major shareholders personally cannot afford to pay for the rights.

 

[MikeL09]

Was wondering why the company issue such high interest rate PS. Might as well go for rights issue and definitely can raise much more money without obligation of paying 6% dividend annually unless major shareholders personally cannot afford to pay for the rights.

One of the reasons cited by Hyflux for taking the PF shares route is that they do not want to dilute the mother shares in the interest of existing shareholders, not to mention their share price, which is just beginning to see some stability after the recent bashing.

 

[Garlic & Butter]

dont forget their recent "bonus" issue also

 

[MikeL09]

dont forget their recent "bonus" issue also

Yes, sir!

I should write, they do not want to further dilute their shares.

 

[Mecisteus]

Yes, sir!

I should write, they do not want to further dilute their shares.

bonus shares do not dilute

take for example, there are 10 shareholders each with 1 share. bonus share of 1 for 1means the 10 shareholders now got 2 shares each. there is no change in the shares distribution

also no change in shareholders wealth

 

[Chua Zhiming]

Was wondering why the company issue such high interest rate PS. Might as well go for rights issue and definitely can raise much more money without obligation of paying 6% dividend annually unless major shareholders personally cannot afford to pay for the rights.

I was thinking about that too. Maybe they find it too near to their bonus issue last year and maybe a bank loan rate is too high? They might have calculated that a fixed 6% rate still gives them a reasonable >5% ROI with a peace of mind. It depends on whether a 200m, 7 year loan on a 25 year investment looks good to you.

But still, they should have offered 5.5 or even 5% and i am quite sure there will be sufficient interest. Or they might be aiming for 3-400m after-all.

Going in with 10k...hope to get it.

 

[tkwei123]

well... we still got till next Wed 12noon to decide
and with MCT to consider as well...

anyway, i see this CPS fitting in as a small proportion of a fixed-income part of a portfolio... maybe around ~10% or so, given the high gearing & risk involved
this one must really go in with "eyes wide open"... unlike the prev DBS 4.7% one - that one i just closed 1 eye and pressed

Coincidentally, DBS just announced redemption of its 6% NCPS
LOL... it was advertised back-to-back to this hyflux 6% one on today ST...