Is Hyflux 6% a good deal?

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QUESTION 1
Is Hyflux 6% a good deal?
Seek your opinion. Hyflux cumulative perpetual share 6% is trading below par ~$93 now. Par value is $100. 1st callable date is Apr 2018, which is 4 months away. If buy now, the potential return could be the diff in par value ($7) plus $3 coupon. If Hyflux do not call back in Apr 2018, the coupon rate will raise to 8%.
Can invest?

Here are the known factors :

  • YTC is 32% (annualized return of buying now at current price and holding till Apr 2018 and assuming Hyflux redeems the perp).
  • The coupons are cumulative, meaning that it will accumulate and they have to pay back the missed coupons eventually – if they dont go belly up.

Unknown factors:

  • Does Hyflux has the cash flow to redeem the bond in 2018 Apr?
  • Does Hyflux has the capabiity to pay the 6% coupons in Apr 2018 and if they do not redeem, can they can pay the 8% coupons thereafter?

From my reading of financials and various analyst reports, we know that they are not able to redeem in 2018 if they do not sell Tuas plant which they have put up for sale in Feb 2017.  The key is whether they can sell the plant. They may choose not to sell the plant, if they cannot get good money for it.

The risks are:

  • Hyflux do not redeem in Apr 2018.
  • Hyflux can choose to delay paying the 6% or 8% coupons, until their cash flow improves.
  • Can Hyflux go bankrupt?

If you can accept these risks, Hyflux 6% CPS at 32% YTC is a great buy!

 

QUESTION 2
Hyflux CPS can be called on any date after the redemption date? Hyflux can also redeem partially first?

Yes to both questions. Hyflux 6% CPS can be called any day after the redemption date, not necessary on coupon paying dates or every few years. They may also be redeemed partially in Apr 2018 if Hyflux so desires.  Page 15 of prospectus:

The idea of partial redemption is so that they may not have enough cash to redeem all S$500M in Apr 2018 without selling their Tuas plant.

 

QUESTION 3
Hyflux has proposed payment of dividends (for Hyflux shares) in specie of Hyfluxshop. Is this an indication of further drop in CPS price (as CPS holders will not be paid their dividends) ?

In page 15 of Hyflux 6% CPS prospectus, if hyflux chooses not to pay dividends to the 6% CPS shareholders, they cannot pay dividend even in specie to their normal shareholders:

Hyflux prospectus can be found here:
http://sgx.com/wps/wcm/connect/af042043-38e9-4d55-8260-f42a66957650/Hyflux+-+OIS+%282011+04+13%29.pdf?MOD=AJPERES&CACHEID=af042043-38e9-4d55-8260-f42a66957650

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