Saturday, April 16, 2011

Hyflux Preference Shares

This post is slightly overdue as interested parties would most likely subscribed to it. Currently I see a lot of interest in it with books closed for subscription closed that very morning when it was launched in my workplace.

In fact I did carry around the Hyflux advertisements and ask some of my aunties in my office to subscribe to it. The 6% cummulative dividends and 8% step up (2018 if not recalled) is a compelling reason to subscribe.

However, do take note that the preference shares are not rated and most probably only Singaporeans are familiar with Hyflux. It is unlikely to have fund houses buying large quantities as it has no credit rating and fund managers cannot overide the mandate of having non investment grade preference shares/bonds in their portfolios.

This may result in poor liquidity.

It is extremely rare for non financial companies to issue preference shares as it is a tool used mainly by banks to shore up their capital adequacy ratios. The other non bank that issued preference shares I know of is Cheung Kong Holdings.

If the size is increased to $400M, Hyflux will have an additional war chest of $400M, a hefty sum relative to its $1.8B market cap.

Wait, why does Hyflx need so much money suddenly? Not considering Hyflux would have to repay $24M (6% of $400M) every year to preference shareholders which is more than 30% of its 2009 net profit ($75M).

Are there any dividends left for ordinary shareholders?

With interest rates being all time low, is there a reason why Hyflux has to resort to expensive financing?

Is there a problem with Middle East Investments? Middle East contributed the bulk of revenue in recent years, over taking China as it largest revenue contribution region in 2009.

According to SGX announcement in April 15th 2011, one of the directors sold all his stake in Hyflux.

Have you applied for it?