SGD New Issue Review : Hyflux Perp NC2 High 4%
HYFLUX SGD PERP NC2
– Price Guidance: High 4% area
– Perpetual NC2 with rate reset in year 2 and 200bps step-up in year 2
– Significant early indication of interest prior to deal announcement
Dear old Hyflux.
To the casual observer, the only thing growing healthily on their income statement is INTEREST EXPENSE.
Even revenues are not growing.
Hyflux Profit Increases Almost Five-Fold Following Asset Sales
“May 8 (Bloomberg) ……Without one-time gains of S$56.9 million that included divestments of stakes in two units to Marmon Water Singapore Pte, revenue was 29 percent lower than the year-earlier period, Hyflux said today in a statement to the Singapore exchange.”
Competition is heating up and unlike Banyan Tree, there is no first mover advantage for China’s utility business because technology is the game changer (Hankore etc in, Hyflux out). Therefore we have Hyflux moving into Algeria and Mexico these days.
25 Jun 2014
Hyflux, Banco Interacciones Sign Pact for Mexican Water Deals
June 25 (Bloomberg) — The cos will cooperate on exclusive basis on water and infrastructure projects in Mexico using Hyflux’s technologies, they say in statement today.
• Agreement marks Hyflux’s first venture in Latin America, CEO Olivia Lum says in press briefing
• Venture to tap on Mexican govt’s plans to boost infrastructure: statement
Hyflux R&D numbers.
Since our write up in Jan this year where we mentioned the key risks in their revenues and jurisdictions of operation that the company faces (which have not changed), there has been little developments except that they have increased dividends. https://tradehaven.net/market/sgd-new-issue-review-hyflux-subordinated-perpetual-nc3-high-5/
Company Facts :
Market Cap SGD 981 million (vs 974 mio)
Dividend Gross Yield 2.7% (vs 1.2%)
Financial Leverage 4.8 times (vs 4.4 times)
Debt/Equity 259% (vs 239%)
Debt/Assets 52.9% (vs 47.6%)
Key Person risk 32.3%, Olivia Lum (unch)
5 analysts cover the company – 3 recommend SELL/UNDERWEIGHT, 1 recommends HOLD, 1 is NEUTRAL.
All remains now is the assessment if high 4% is good enough for 2 year risk and I have a strange feeling, the public perception that Hyflux is partially state owned or will be state owned, if need arises.
The answer to the first question is NO. Hyflux is not state owned. They did develop a joint project with Temasek for Singapore’s desalination plant though.
Hyflux Bonds Secondary Prices
Dare I say anything bad ?
Hyflux is a familiar household name here like the Tiong Seng’s and Koh Brothers’. I would stick my neck for them over Aspial and Oxley and Raffles anyday.
Yet, I will not. For all of them because Singaporeans cannot get enough of these unrated bonds and I will keep my mouth shut because the Hyflux 5.75% perpetual done in Jan is at 102 now ! even as they are up to their necks in debt.
Given they have so much debt due in the next 2 years which is likely to be a higher interest rate environment, one cannot but help wondering how long does perpetuity last ?
Thanks again TH,
A perpetual in the 4’s, even the highish 4’s, from an indebted beast like Hyflux is to my mind another indication of the madness that is today’s SG corporate bond market.
Any views on today’s Halcyon Agri NC5 offering?
Cheers, JC8888
Speaking to some retail folk, there is an assumption that Temasek would be there for local companies especially after sticking up for Olam.
Hearing books about 300 mio at the moment which has perhaps something to do with the PB rebate.
Trying to get European interest now…books still open.
HYFLUX SGD PERP NC2
– Final Guidance: 4.80% (the number)
– Orderbook SGD350mn
– Expected Issue Size: SGD150-200mn
– Timing: Today’s business, launch and pricing shortly
Secondary market prices post launch.
Halcyon 6.5% 07/2019 100.55/100.60 (high of 100.90)
Hyflux 4.8% Perp nc2 99.60/99.80
Hyflux Sells 90% of S$175m Perp NC2 Bond to Private Banks
July 22 (Bloomberg) —
• By investor type:
• Private banks: 90%
• Fund Managers, banks, others: 10%
• By geography:
• Singapore: 80%
• Rest of Asia, others: 20%
i sold my Aspial Corp 5.05% 2019 lost $50 still happy. of course more if u consider interest. i was really busy that faithful day at work..meeting..got a call from RM..Aspial familiar name great! i rejected many earlier opportunities so tot i will not want to miss out this time. wow..wow i was shocked n praying hard rm will call me next day say my order rejected. Lost some sleep over it..not worth it.
TH i m thinking to buy secondary bond offer any good ones to recommend?
Thanks!
Congratulations !
It is a headache for your next investment because bonds that we can sleep well with will make you sleepless on lack of yield ! hahaha
The new Olam is still about 100.20/100.40, if you are an Olam believer now. Some of the offshore issues that were beaten down last year are good value because our SGD prices are still below their fair value.
I prefer to look offshore for the yield though and I hope you are not thinking of jumping back into frying pan with Otto Marine today.
Secondary Market Prices
Halcyon 6.5% 07/2019 100.25/100.75
Hyflux 4.8% 2yNC Perp 99.25/99.70
Pacific Andes 8.5% 07/2017 99.98/100.10
I guess Hyflux’s shareholders fainted. Hyflux issued $475m of perpetual bonds in Jan & July this year but these monies are now left idling after failing to secure new projects, including the Changi NEWater project in Sept.
$528m are sitting in their accounts now (based on latest 3Q14 report) vs $244m a year earlier.
Idling is good.
They have $ 75 mio due next year and another $ 413 mio due 2016.
If they prudently manage their cashflows, they may outlast the rest of the field.
They offloaded a building with $80m+ capital gain, near the peak of property prices. Then, they lost the bid for Changi NEWater in Sept and embarked on almost weekly share buybacks since Oct.
The $$$ from property sale and idling cash should really deter them from issuing more debts in the next 12-months.
Hyflux opens largest desalination plant in Algeria
http://www.businesstimes.com.sg/companies-markets/hyflux-opens-largest-desalination-plant-in-algeria
With the capacity to desalinate 500,000 cubic metres of seawater daily, Magtaa Desalination Plant will supply water to Oran in Algeria as well as to nearby neighbouring provinces under a 25-year water purchase contract with L’Algérienne Des Eaux and Sonatrach. Hyflux will operate and maintain the plant.
Not bad, considering the largest in the world, desalinates 1,025,000 cubic metres daily
http://www.bloomberg.com/news/2014-04-23/saudis-start-production-at-world-s-biggest-desalination-plant.html
Genting also having similiar problem now. Their Korea project is delayed and they are now sitting on nearly $3.2bn of cash vs appx $2.28bn of perpetuals debts that they got to keep servicing.
That is a happy problem especially when assets cheapen for them to buy.
and as bond investors, it’s always better to lend money to those who don’t need them.
Bye!
LOL, genting is also embarking on share buybacks now.
At least Genting is not issuing bonds to do it.
Despite the recent share buybacks, Hyflux’s ordinary share is trading near decade’s low now.
With Market cap of $760m, the cash-in-hand is equivalent to appx 70% of the outstanding ordinary shares at current price.
Given their leverage, you should also consider Debt-in-Hand as well.
Only Temasek can save them now.
Dear people and TH, can teach me something?
Genting has been doing share buyback with excess funds lately.
Unlike other companies doing share buyback, the purchased shares are not kept as “treasury shares”:
“Number of treasury shares held after purchase: NIL”
http://infopub.sgx.com/Apps?A=COW_CorpAnnouncement_Content&B=AnnouncementToday&F=RIEK64TSKKMI508D&H=9bb80d220a7ddab43f9ee43fd1b8aeb22f619dfbe6bdf61b2c092cde12b4fe04
Does this mean that the purchased shares are written-off?
As these shares are purchased above NTA value, writing them off don’t really increase the NTA of the remaining listed shares, right?
Wouldn’t such actions create additional losses for the company?
Thank you
Don’t think so.
No pnl involved. The extra is probably taken from the retained earnings which is a way of giving back.
Warren Buffet : “Buying dollar bills for $1.10 is not a good business for those who stick around.”
Thank you TH
Hyflux Trading Halt
HYFLUX GETS LETTER OF AWARD FOR WATER PROJECT IN QURAYYAT, OMAN
Hyflux Group Gets Oman Water Project Worth $250m
Finally, they have somewhere meaningful to use their spare cash
http://infopub.sgx.com/FileOpen/News%20Release%20-%20Qurayyat%20IWP.ashx?App=Announcement&FileID=328834
US$210m role in turnkey engineering, procurement and construction (EPC) as well as operations and maintenance of a 200,000 cbm/day water project IN QURAYYAT OMAN
Hyflux Consent Solicitation Exercise
(FOR Bondholder of Series 6-10 Notes, NOT Perpetual bonds or Preference Shares)
S$55,000,000 3.89 Per Cent. Notes Due 2016 (Series 006)
S$100,000,000 3.50 Per Cent. Notes Due 2016 (Series 007)
S$100,000,000 4.25 Per Cent. Notes Due 2018 (Series 008)
S$65,000,000 4.60 Per Cent. Notes Due 2019 (Series 009)
S$100,000,000 4.20 Per Cent. Notes Due 2019 (Series 010)
Early Bird Acceptance Date: 5pm on 27 Jan
Early Acceptance Fee: 30 cents
Standard Acceptance Date: 3 Feb
Standard Acceptance Date: 10 cents
– 10.00am for Series 006
– 10.30am for Series 007
– 11.00am for Series 008
– 11.30am for Series 009
– 12.00pm for Series 010
Please note that this is not applicable for the perpetual bonds from Hyflux. Share has recovered 20% from recent lows. and even the 4.8% Perp in this thread enjoyed a modest gain since the beginning of this year.
Free money for better terms and conditions. Not a bad ang pow !
I am new bond. With recent Hyflux win in Oman, would this a good time to buy Hyflux 4.8% perp bond ?
Thanks in advance
I would suggest that it should be more a consideration for buying the stock than the bond although it should be seen as a credit positive or neutral event.
This bond is trading at around 95 cts now which means it is giving a yield of 8.35% to call in 07/2016.
At this rate, the bond would not be called at 100, because they would be refixing the coupon at 2y interest rate (currently 0.8%) + 6.148% = 6.948%.
Another development with Hyflux is that they have recently strengthened the covenants for their senior bondholders, which can be viewed as negative for the junior bondholders eg. perp holders.
If you are comfortable with all that and the price, you can decide to buy the bond then.
Hyflux 4.8% and 5.75% are both trading at 95-96 level with first call date 18-24 months later. They have so much spare cash now; Buying back these bonds in resale market = borrow 100 payback 96, translating to immediate capital gains. Good deal right?
Nevertheless, we rarely see bond buybacks by local issuers in the resale market.
Next, something crossed my mind when I knew about their recent bonds consent solicitation exercise. Could the cost of financing from bank syndicate loans be cheaper than bonds now? If this is so, switching = capital gain again. So nice 🙂
Hi Casey,
Unlike bonds, Perp have no guaranteed redemption so I will only consider those with self-imposed penalties such as step-ups after first call date. My biggest mistake was to ignore the exclusion of such clause for Cheung Kong Perps many years ago. I believe this is the biggest reason why the perps of such an outstanding issuer like CK, continuously tanked below 100 (at one stage below 90).
CK spiked up to 99+ a few days ago and I switched to Hyflux. To me, it is closure, i can finally move on.
Please consider the quality of issuer when you are choosing bonds. Bond yields are usually single digits, so if the company goes bust, you cannot forgive yourself.
Next, safe issuers give lower rates. However, when interest rates are going up, you will still face paper losses from bonds of such issuers because the maturity is too long and/or underlying yields of your bonds are too low.
Keppel 4% is one of such examples; the maturity is more than a decade from now and trades at appx 7-10% discount from par currently.
Important Note: Hyflux is definitely a riskier option than CK and I am just sharing my past experience. I AM NOT ASKING YOU TO BUY ANY OF THE BONDS DISCUSSED, INCLUDING HYFLUX, CK or KEPPEL. Hahaaaa
Net-Yields for Hyflux 4.8% continue to drop this week, based on TH’s indicative bid-ask. 🙂
http://52.77.202.71/wp-content/uploads/2015/01/SGD-2014-CORPORATE-BONDS4.jpg
I personally don’t think will get better from here.
I am already happy with the yields
and I am very thankful because your site provided me with a neat array of bond-yields database to study carefully before choosing one to switch.
Latest results:
Market Cap: $722m
Cash: $444m (appx 60% of market cap)
Too much money left idling since $475m perp securities issue (4.8% and 5.75%) in 2014.
Debt Maturity :
2015 75 mio
2016 330 mio
2017 300 mio
2018 100 mio
2019 165 mio