Hyflux Restructuring Plan - A Ruthless Elimination of Retail Investors?
Hyflux has been the talk of the town lately due to its cash flow problems which triggered a restructuring process. This process is getting more and more hot after it announced the details of its restructuring plan. Retail investors now face as much as 90%-97% loss of their investment capital with this plan.
The Hyflux restructuring plan unveiled
For every S$1,000 invested, a holder of Hyflux’s perpetual securities and preference shares will recover S$106.54, or an implied return rate of 10.7%, under the company’s newly announced restructuring proposal. Out of this 10.7%, only 3% is paid in cash and the other in shares of Hyflux. For medium term note holders who are ranked higher on the creditors' list, they will get 24.6% where the cash component is about 13.9%.
Sadly, I am one of those affected as I've invested in the Hyflux 6% cumulative preference shares just 8 months before it was suppose to be redeemed in April 2018. I invested the smallest amount which I possibly could as there were some elements of risk for this but it was a risk I thought I could take betting on the sale of TuasSpring to redeem the perps. After all, Hyflux is a national pride dealing with water, which seems like a strategic asset in Singapore and this was a well known name too. Losing money is painful nonetheless even if it doesn't really affect my financial health as I had diversified my investment portfolio. Net net after writing off this investment, my investments are still in the positive but my returns will drop because of this episode.
Stories of plight of retail investors revealed
The Hyflux saga affected more than 34,000 retail investors, many of them are mom and pop investors who are in old age and probably retired. Many have even invested their hard earned life savings into it. Let me share the following which was posted by Straits Times today:
Madam Loo Leong Hun was 55 years old when she was given a list of corporate bonds in June 2012 by a DBS relationship manager to invest in as she had savings in her POSB account.
I do not know why Hyflux had to go into such extreme that they have to accept a proposal by SM Investments Pte Ltd to eliminate the retail investors once and for all. Are there any other solutions or maybe they really have no choice? Throughout all the communications sessions which Hyflux had, the message is clear that if this restructuring plan is not voted through, then the company will face liquidation where perpetual and preference shares investors will not get a single cent back.
I do not have the full picture of what is happening behind when Hyflux selected SM Investments Pte Ltd proposal our of the 16 who approached them. Are there really no other better offers? In Hyflux's investor relations website, it stated that Hyflux’s board unanimously agreed that in the circumstances faced by Hyflux, SM Investments Pte Ltd proposal was the best way forward for stakeholders. From a layman point of view, getting 60% of the company for $530 Million and eliminating $1.7 Billion of debt sounds like a good deal. Without the debts, SM Investments Pte Ltd can then really run the business well where they won't face anymore cash flow problems. Of course, this is done at the expense of the retail investors who loss all the hard earned money they have put in.
What happens moving forward?
Hyflux will hold a third round of town hall meetings with holders of its notes, perpetual securities and preferences shares, as well as ordinary shares on Mar 13. The scheme meeting will be held on 5th April where everyone will come together to vote Yes or No for the proposed restructuring plan.
To pass, the scheme will need to be approved by at least 50 per cent in number and 75 per cent in value of each creditor class. “If one class fails, the scheme fails,” said Hyflux’s legal advisor. I'm not sure if its easy to pass the scheme and whether retail investors will accept the meagre recovery amounts. There is already a petition ongoing, started by some retail investors to appeal to the Singapore government for help. Many of them are saying they will vote No and rather see Hyflux go into liquidation then let them restart by eliminating the debts. All eyes will be on this voting which will probably be a media sensation in Singapore's history. A popular household name with rag to riches stories may be going back to the rags again this time.
I feel sad that some investors are really losing all they have and some even have their whole families having invested in Hyflux together. Though all investments comes with risk and we should manage our risk by not investing everything into one basket, it is very hard for the average man on the street to know what risk means especially when they are already at a certain age. Nobody likes to lose their life savings which is painful to begin with. Will there be hope for these retail investors who are invested heavily in Hyflux? Time will tell what will happen next.
The Hyflux restructuring plan unveiled
For every S$1,000 invested, a holder of Hyflux’s perpetual securities and preference shares will recover S$106.54, or an implied return rate of 10.7%, under the company’s newly announced restructuring proposal. Out of this 10.7%, only 3% is paid in cash and the other in shares of Hyflux. For medium term note holders who are ranked higher on the creditors' list, they will get 24.6% where the cash component is about 13.9%.
Sadly, I am one of those affected as I've invested in the Hyflux 6% cumulative preference shares just 8 months before it was suppose to be redeemed in April 2018. I invested the smallest amount which I possibly could as there were some elements of risk for this but it was a risk I thought I could take betting on the sale of TuasSpring to redeem the perps. After all, Hyflux is a national pride dealing with water, which seems like a strategic asset in Singapore and this was a well known name too. Losing money is painful nonetheless even if it doesn't really affect my financial health as I had diversified my investment portfolio. Net net after writing off this investment, my investments are still in the positive but my returns will drop because of this episode.
Stories of plight of retail investors revealed
The Hyflux saga affected more than 34,000 retail investors, many of them are mom and pop investors who are in old age and probably retired. Many have even invested their hard earned life savings into it. Let me share the following which was posted by Straits Times today:
Madam Loo Leong Hun was 55 years old when she was given a list of corporate bonds in June 2012 by a DBS relationship manager to invest in as she had savings in her POSB account.
"Hyflux preference shares was on the list, and it was strongly recommended as it was a strategic and national asset. The money was to facilitate expansion and build desalination plants. I thought I had invested in a good company... which was our nation's pride," Madam Loo, now 62, told the High Court yesterday.
One of some 34,000 registered holders of Hyflux perpetual securities and preference shares, Madam Loo was allowed yesterday by Justice Aedit Abdullah to voice her concerns, which he said are "shared by many of you".
She cited the case of another elderly investor who had invested in 2,500 preference shares. "She is 86, lives alone in a one-room flat and... has mobility problems. She used Hyflux dividends to pay off some of her daily expenses. Now, she has no more earning power,"she said.Madam Loo is just one of the 34,000 retail investors who are affected. She proposed a plan to waive off the coupon payment for the perpetual and preference shares but hopes that this group of people will not be eliminated from Hyflux books once and for all.
I do not know why Hyflux had to go into such extreme that they have to accept a proposal by SM Investments Pte Ltd to eliminate the retail investors once and for all. Are there any other solutions or maybe they really have no choice? Throughout all the communications sessions which Hyflux had, the message is clear that if this restructuring plan is not voted through, then the company will face liquidation where perpetual and preference shares investors will not get a single cent back.
I do not have the full picture of what is happening behind when Hyflux selected SM Investments Pte Ltd proposal our of the 16 who approached them. Are there really no other better offers? In Hyflux's investor relations website, it stated that Hyflux’s board unanimously agreed that in the circumstances faced by Hyflux, SM Investments Pte Ltd proposal was the best way forward for stakeholders. From a layman point of view, getting 60% of the company for $530 Million and eliminating $1.7 Billion of debt sounds like a good deal. Without the debts, SM Investments Pte Ltd can then really run the business well where they won't face anymore cash flow problems. Of course, this is done at the expense of the retail investors who loss all the hard earned money they have put in.
What happens moving forward?
Hyflux will hold a third round of town hall meetings with holders of its notes, perpetual securities and preferences shares, as well as ordinary shares on Mar 13. The scheme meeting will be held on 5th April where everyone will come together to vote Yes or No for the proposed restructuring plan.
To pass, the scheme will need to be approved by at least 50 per cent in number and 75 per cent in value of each creditor class. “If one class fails, the scheme fails,” said Hyflux’s legal advisor. I'm not sure if its easy to pass the scheme and whether retail investors will accept the meagre recovery amounts. There is already a petition ongoing, started by some retail investors to appeal to the Singapore government for help. Many of them are saying they will vote No and rather see Hyflux go into liquidation then let them restart by eliminating the debts. All eyes will be on this voting which will probably be a media sensation in Singapore's history. A popular household name with rag to riches stories may be going back to the rags again this time.
I feel sad that some investors are really losing all they have and some even have their whole families having invested in Hyflux together. Though all investments comes with risk and we should manage our risk by not investing everything into one basket, it is very hard for the average man on the street to know what risk means especially when they are already at a certain age. Nobody likes to lose their life savings which is painful to begin with. Will there be hope for these retail investors who are invested heavily in Hyflux? Time will tell what will happen next.
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