HYFLUX LTD: A Bet that Went Terribly Wrong

 28 March 2019 Update

 https://tinyurl.com/y3q9vznj

The PUB's Tender Price for Singapore's second desalination plant at Tuas closed  on 23 October 2010.
Altogether 8 tenderers responded to the PUB's tender.  Hyflux tendered a price of S$ 0.45 per m3 for the 1st year based on  320,000 m³/d of water supply over a 25-year period from 2013 to 2038.  Its tender price  is followed  by Keppel Seghers/Beijing Enterprises Water Group at S$0.67 per m3 which is  about 50% higher than Hyflux's tender price.

The tender price for the rest of the 6 tenderers are enclosed here for information

PUB Tender for Singapore's 2nd Desalination Plant
Tender closed on 23 Octobe 2010
Name of the Company	Tender Price for 1st year		% from lowest tender
	(S$/m3)
	Original bid	Alternative bid
Hyflux	0.45		-
Keppel Seghers/Beijing Enterprises Water Group	0.67		148.89%
United Engineers NeWater/IDE Technologies	0.93		206.67%
Leighton Engineering & Construction/Tadagua	1.35	0.62	300.00%
Sembcorp Utilities	1.42	1.4	315.56%
Sembawang Equity Capital	1.59		353.33%
YTL Power International Berhad	1.64		364.44%
Spanish Befesa Agua	-		-
Source : https://www.desalination.biz/news/0/Eight-bidders-for-Singapores-second-desalination-plant/5583/

24 February 2019 Update



Hyflux has obtained court's approval to hold scheme meetings for creditors to vote on April 5.   First with the senior unsecured creditors which will  include the banks and medium-term noteholders;  thereafter,  with the subordinated debt holders that will involve the  34,000 perpetual security and preference share investors. Trade creditors of the three subsidiaries will have their scheme meeting on Apr 8.

There were active discussions in the market.  Some appealed to the Government for financial assistance;  others wanted the Government to intervene in Hyflux's restructuring process. Some called to boycott the coming scheme meetings;  others appealed to investors to vote "No to Salim" as shown in this video.

 

However,  "Saying NO to Salim" will mean Hyflux will have to liquidate its assets and investors may get peanuts or nothing in a fire sale. This will not help the poor and "ignorant" people,  especially those who had been lured to part with their life time savings.

Hyflux's losses are mainly from TuasSpring's operation because they have tendered at a very low water price,  42% lower than SingSpring, resulting an annual difference of about SGD$38 million if there is no supplemented income from the electricity generation.   One suggestion is for the investors to appeal to the Government to work out a solution to rescind the PUB/Hyflux's TuasSpring existing  water contract @ a reasonable penalty to Hyflux.   Thereafter,  to allow a new tender to be called to reset the water price.  In the new tender,  the tenderers are allowed various options including taking over the TuasSpring at a reasonable cost to be agreed with Hyflux and its shareholders. PUB can always set a base price for the water supply for the new tender in order to protect the interest of the taxpayers' and the water consumers.


15 February 2019

Many listed companies failed to survive or fall from the grace  in the past because of poor business decision made.  In the SGX Exchange,  we have China Fishery Group,   Noble Group and many others.   The latest addition is Hyflux Ltd,  a SGX listed water treatment company in Singapore. 

Hyflux’s failure attracted a lot of attention lately.  This is because as many as 34,000 investors took the opportunity to buy the bond issues raised by the Company in the past 4 years.  The latest bond issue was the SGD$500 million 6% Perpetual Capital Securities (CPS) issued in 2016.      

Only recently,  the investors were told that  the company was in heavy debt and its creditors were after them.  Hyflux Ltd sold everything to an Indonesian company.  The holders of  perpetual capital securities and preference shares would get nothing except for the 267 million Hyflux shares contributed by the Board and Ms Oliver Lum.

The Blaming Game

Many articles attribute the failure of the company to Corporate Governance and blamed “the company and its Board for failure to pay enough attention to the finances” .  However,  some took it personally and attributed the failure to the founder,  Ms Oliva Lum,  for making poor executive decisions.  On the other hand,  the company blamed the “prolonged weakness” in the local power market as the reason for the losses.   Meanwhile,  the public,  especially those 34,000 investors, continued to bombard everyone including SGX and the Singapore Government for the lax in the "policing",  resulting them to lose a lot of money in the company.   While the blaming game is still going on,  no one knew what exactly happened and no one bothered to ask.

What Could Have Possibly Gone Wrong?

It would become very clear if one has the following information put together

1.  It was reported that for the Full Year ended in Dec 31, 2017,  the TuasSpring which is an integrated water and power plant registered a net loss of S$81.9 million, with wholesale electricity prices clearing at levels that are below fuel costs;

2.   The contract price for the supply of desalinated water for SingSpring was set at SGD $0.78 per cu metre whereas for TuasSpring,  it was set at SGD$0.45 per cu metre.

For information,  SingSpring was the first desalinated water plant installed by Hyflux and now come under the management of CitySpring which is a company under the wing of Temasek.   TuasSpring is the second desalinated water plant which has an integrated 411 MW power plant.  The water contract price was set by a tender called by PUB to supply desalinated water over a 25 year period.

It is possible that in order to secure the contract to build the TuasSpring,  Hyflux purposely lowered the contract price by 42% from SGD$0.78 to SGD$0.45 per cu metres.   Note that at the time of PUB tender preparation around 2010, the oil price was about USD$60-80/= and poised to move higher and higher.   Therefore,  they could have expected the wholesale electricity price to rise as oil price went up.  Having used very efficient Gas Turbine Generators,  they could enjoy the cheaper self-generated electricity with the excess electricity selling to National Grid to earn enough revenue to supplement the lower revenue from the sale of the water supply.    

The annual design capacity of the TuasSpring was 116 million cu meters per year,  so the yearly  difference in water revenue will be around SGD$38 million per year if there is no supplemented  income from the electricity generation. 

What Actually Happened?

There was a crash in the oil price.   The WTI Light Crude Oil Price dropped 75% from about USD$110 to about USD$27 for the 2-year period between 2014 to 2016, That was a year after TuasSpring has gone online in 2013.   This must have affected badly the sale of electricity from the power plant resulting  “wholesaleelectricity prices clearing at levels that are below fuel costs”.   Note that although TuasSpring power plant is Gas Turbine driven,  gas price is always contractually tied to the oil price.

 Was This Vital Information Available?

At the time when Hyflux Ltd floated the SGD$500 million 6% CPS in 2016,  the oil price had already collapsed  to USD$27/=.  So such information was available.

In its prospectus for the 6% CPS in2016,  Hyflux has also disclosed with the following statement

1. With the substantial completion of the Tuaspring plant construction, the Singapore marketcontribution reduced to 38 per cent. or S$168.9 million in FY2015, down from 72 per cent.or S$232.6 million in FY2014.

2. The Group remains cautious on the outlook for the water and energy market in 2016, amid depressed oil prices, slower economic growth and volatility in global markets. If the current challenging market landscape of low Singapore electricity prices continues, the Tuaspring power plant is expected to incur losses in 2016. As part of its asset light strategy, the Group will continue to explore divestment opportunities to recycle capital for growth

The company  has also disclosed the financial position in their annual reports etc vis-a-vis the revenue collected from TuasSpring.  The only thing that was not disclosed or explained properly is how the oil price will affect the revenue of the company as illustrated below.

Lessons to Learn

The Web is full of articles about the lessons to be learnt from the fall of Hyflux especially when everyone knew that Hyflux was debt ridden and there were many “red” flags showing up in their financial statement.  The high net-gearing ratio is one of them and the cash flow problem is another.  The question remains even today is why investors were still interested to give Hyflux the money?

It is believe that the information available were located all over different places. They were not collected and laid properly on the “table”  for investors to make a good decision.   Therefore,  bulk of the investors,  especially the general public,  have placed the “bet” that Hyflux Ltd would turn around despite all the adversity and discouraging news. Besides,  water is scare resource and there is no question about the sale of water to PUB.  Perhaps,  not many were aware that the pricing strategy of Hyflux Ltd to set water price of TuasSpring 42% lower than SingSpring.

 Disclaimer:  This article is for information and  educational purposes.   Readers are advised to  conduct their own research and study to make their  own investment decisions.

How to Repair LED Lamps

11 February 2019 

https://tinyurl.com/y3ms3s85

The LED circular lamp in our dining room  went off suddenly. This is after about 2 years in operation.   One set of two LEDs were found faulty.  This article serves to share how to troubleshoot and repair this LED module.  The procedures described here can be used also on other types of LED lamps

How LED Lamp Works?

Unlike normal fluorescent lamp,  LED lamp does not have fluorescent tube nor ballast;  instead,   it has the following components

1.   The LED element;

2.   The LED  driver;

3.   The Aluminium heat sink.  

As current flow through the LEDs,  it causes the LEDs to give out lights.  Depending on the size and power of the lamp,  a  LED driver can supply different wattages to several LEDs arranged in series.    In this case for the 18 watts circular lamp,  the driver will supply 48 Volts to the LEDs.   Each LED will operate at around 3 to 3.6 Volts and consume around 0.5 watts of power. There are about 36 LEDs in this 18 Watts lamp.   The LEDs are arranged in an array as illustrated in the following

What can usually go wrong?

The LED driver consists of very few components as shown. 

It is unlikely to have broken down as it is quite robust and reliable.   Most likely the LEDs are the ones at fault.

What’s Needed?

There is no special and expensive tools needed.  

Description	Remarks (doubleclick to enlarge pictures)
1.  Two numbers of 1.5 Volts AA or AAA battery,  improvised as LED tester	Solder them up in series as shown
2.  LED elements	They are available from various online website such as AliExpress.  100 piece of common type of LEDs cost less than USD$1/=
3.   Soldering tools	Soldering irons and solders

 Repair Step by Step

Description	Action	Remarks (doubleclick to enlarge pictures)
1. Inspection & testing	1.  Go through by inspecting the LED one by one. 2.  One could also light up the LED by touching their ends using the improvised LED tester.   The pair of LED should light up unless they are faulty.	Faulty LED can be easily spotted by its burnt mark as shown
2.  Unsoldering	1.  Unsolder and remove the faulty LED from the board using the soldering iron.   2. Carefully solder the new LED after having identified the locations of the Anode and Cathode and place it back into the correct position	The cathode is identified by an additional plate at the end of the tips as shown
3.  Final Testing	1.  After soldering,  test the repair  using the improvised LED tester.

MiTV Wifi Problems & Drop Outs

5 Feb 2019 

# Wifi,  MiTV4, Drop out,  Drop off,  Wifi Analyser,  TV problem  
https://tinyurl.com/yb6foxx9 
Jump to: 
1. System Clean up Step by Step 
2. Frequent Movies Interruptions
3. Why Wi-Fi Interference?
4. Ethernet Cabling

Users often encountered technical problems with Smart TVs especially Android TV such as MiTV.  Some cannot use Bluetooth;  some have missing APKs while others have difficulties with frequent  movie interruptions or internet drop outs. 

Many of these problems got resolved by either switching the TV off for about 30 seconds and then switch it back on again or by resetting the OS.

What Can Go Wrong?

If the TV can resume normal operation after switching it off and on again or through a reset,  most likely,  the TV is still in working condition.  Then the  source of trouble could be attributed by none other than the internet connection problem or corrupted OS unless there is already a technical fault developing in the TV. 

Why?

There are many many reasons why smart TVs behaved that way.   Before one starts to blame the TVs and the Internet Providers,  one should understand that all smart TV’s OS can be easily corrupted when it is connected to the internet World.  The most common enemy of the internet  is the [viruses] or [Trojans] .   Then,  there is the poor internet connection or interference.  Lastly,  there are technical limitations such as limited memories clogged with memory "rubbish" so called temporary caches.

Some smart TV especially MiTV often has [Auto System Update] as a default.     So when the manufacturer has an update,   the new TV OS will be downloaded in the background and updated automatically without users' permission.   If there is glitch or interference in the downloading process,  the updated OS will be corrupted and one would have endless problems.

Therefore,  to prevent future OS corruption,   it is best to disable the [Auto Updating] features as soon as possible.  In MiTV,  the [Auto Updating] feature is hidden in [setting]/[About] section.

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System Clean up Step by Step

In case of trouble,  do the followings

Description	Action	Remarks (Doubleclick Picture to enlarge)
1.  Switching off and then on the TV again	1.  Pull the plug out from the outlet and let the TV rest for at least 30 seconds to discharge the residual electricity;  after that plug back to turn on the TV;	If the TV resume normal operation,   most likely the TV is still in good operating conditions.
2.  Clean up the memory and reset the router	1.  Do a memory clean up as soon as possible 2.  Test the Internet connectivity 3.  Test the Internet Speed	1.  Most TVs have in-built cleaners to clean up memories.  For MiTV,  the default cleaner is  called [TV Manager].  Do the basic cleanups such as [Optimising],  [Memory Boost] and [Trash Clean]. If necessary,  try also CCleaner or Clean Master or all other popular cleaners to further clean up and make sure that viruses if any are get rid off. 2.  If the connectivity test shows some errors,  most likely the router's memory is corrupted.  Reset the router by turning it off for a few seconds and then turn it back on again; 3.  If the internet speed is low,  less than 200kb/sec;  most likely one would not be able to watch seamless YouTube movies.  Wait for internet to improve or reset the router or assume there is an  internet speed problem
3.  Perform a reset	Please refer to the following article to do a reset on MiTV : Xiaomi TV: Factory Reset	1.  There are 2 types of reset available.   One is the soft reset and the other the hard reset.   2.  The hard reset will allow the TV's OS to be reloaded with all  defaulted programs. It will wipe out all other installed APKs.  So make a copy of the installed APKs in thumb drive or cloud drive.

Before doing the above,  one should always check the strength of the Wifi signal at the location where the TV is located just to make sure the TV is not located in any of the blind spot not covered properly by the Wifi router.

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Frequent Movies Interruptions

There are a few possible reasons.   Most probably due to the  following

1.   Corrupted OS;
2.   Hardware problems;

3.   Poor internet reception;

4.   Wi-Fi Interference

In here,  this article will deal with how to solve Wi-Fi interferences.  This is usually the likely cause when TV is connected to the Internet by Wi-fi.

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Why Wi-Fi Interference?

Most routers have a factory defaulted channel to send Wi-Fi signal.  If  the neighbour is using the same channel,  there could be Wi-fi interference.  This will cause interruptions to the TV reception or TV's operating system.

How Could it be Detected?

Fortunately,  there is a way to identify if there is such possible interference for Android TV or Android devices. 

Description	Actions	Remarks (doubleclick picture to enlarge
1.  Download Wi-fi Analyzer	Download  from here   or here    and sideload it to MiTV using thumb drive or Cloud Drive	Wi-fi Analyzer can be used to find out if the Wi-fi bandwidth is already used by others routers and if there is a need to change the channel to prevent Wi-fi signal interference. If one is using an Andriod Phone,  download the apk from Google Store and use the phone to analyse the wifi signals.
2.  Analyse the Wi-fi Channel	1.  Fire up the Wi-fi Analyser,  one would be greeted with the screen  shown on the right.	One could tap the 2.4G or 5G button at the top left hand corner to change the Wi-fi network. For 2.4 Ghz,  there are 14 channels and for 5 Ghz,  there are 3 bands with channels from 36 to 161
3.  Change Channel	1.  Note down the channel number that is least congested in the 2.4 GHz and 5.0 GHz band; 2.  Change the channel by entering the defaulted address [192.168.1.1] in an internet browser  such as Firefox or Google chrome.   The browser will ask for User name and password; 3.  For ASUS routers,  the next screen will appear after the successful log-in..   Select [Wireless] In the next screen,  select the correct Wi-fi frequency (2.4 Ghz or 5.0 Ghz) and change the control channel number as shown	If the Wi-fi is congested in a particular channel,  the reception could be easily interrupted by other Wi-fi routers. For new router,  the user name is [admin] and the password is usually [0000] or [admin] or none. The TV will always select the stronger of the Wi-fi range automatically.  2.4 Ghz is usually stronger unless the router is located nearer or next to the TV.

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Ethernet Cabling

The use of Ethernet cabling is always preferred under all circumstances as its signal transmission is least affected by external interference.   If one still have problem with the internet connection using Wi-fi connection,  it is best to try it out using Ethernet cabling.

The Best Time to Update the OS?

Should one feel that it is time to update the OS,   one should first check if there is any adverse remark on the new version by googling.    One could consult the following link to get the new version number.    Then google search using [version number 小米]  for example [1.3.79 小米]. 

The best time to download and update the OS is when the internet is having the best download speed.   This can be judged by doing an internet speed check.   Never do any OS updating work during internet peak hours.

To update OS manually,   goto [Setting]/[About],  doubleclick the MIUI TV version and thereafter,  the system will check if there is a new version and direct one to update the OS manually. 

Leverage Loan Crisis - The Next Market Crisis?

27 January 2019 (Update)

The leverage loan funds continued to bleed in January 2019 after massive loan fund withdrawal at the end of 2018 although the amount of withdrawals were  much lower as shown in the following chart. 

 
 
31 December 2018

https://tinyurl.com/ybbyx3gn

What is a Leverage Loan ? 

In layman’s language,  it is a loan extended to Corporations who cannot get proper loans from the banks because they have either bad debts or credit history.  It is a high risk loan that can easily be defaulted and therefore,  lenders always demand a higher interest rate or the loan is leveraged.   In US,  this is a US$1.3 Trillions business which has doubled in the last 5 years.

How Different from Margin Loan?

Margin Loan is also a kind of leveraged loan but it is provided by stock brokers for buying of equity and stock.  It is heavily regulated by the Authorities.  Leverage loan is a presently a private arrangement between the lender and the borrower on agreed terms which are loosely regulated by the Authorities under the “2013 Leveraged Lending Guidance”.  Understand that the authorities were prepared not to enforce the lending guideline due to pressure of deregulation. 

What about Subprime Loans?

Subprime loans  are often refer to loans provided to home owners who have low or poor credit scores. It is also often packaged as "Mortgae-backed Securities (MBS)” and sold to the public.  It was very popular in 2008,  leading to the 2008 credit crisis.   Now some banks or its subsidiaries are providing similar structured loans but for the Corporations with high debts or poor credit ratings. 

What is the Present Situation?

The total leverage loan in the US has grown to US$1.3 Trillions,  much higher than  high yield bond market.  The leverage of such leveraged loans  has climbed to more than 6.5 times in the US.
In  Asia, it is about 4.5 to 5.5 times.   The leveraged loans are climbing back to the level seen in 2006/2007 in Europe and in the US as shown in the following chart.

Like Margin Loans,  Leverage Loans are also sensitive to the changes in the market.   In October 2018,   the lenders first seen the returns of leveraged loans declined to negative in the secondary markets..  This could have signaled troubles ahead in the market, causing panic withdrawal of money from Mutual Funds & Loan ETFs in November/December as shown below.  

More than US$10 billions of fund were withdrew from the market in the 2 months.  This is almost the whole borrowings of 2018.

Why Leverage Loan Crisis can be Next Market Crisis?

On the record,  the US's leverage loan is only US$1.3 Trillion in total but there was report that   the Corporations have actually owned exorbitant debt to a tune of about US$2.5 Trillions.  This amount is coming close to the $3 Trillion debt that the Subprime Mortgage market peaked and collapsed in 2008.  Just like the subprime mortgage market, these leveraged loans have been packaged as “collateralized loan obligations (CLO)” and sold to “yield-hungry” investors.   Because of this,  many articles have been written about the possibilities of leveraged loans being the next “catalyst” for the coming market crash. 

Can Fed come to the Rescue Again with QE4?

Ms Yellen,  the last Fed Chairperson and IMF’s Christine Lagarde warned about the rampage of Leveraged Loans recently.  Fed also reviewed the “2013 Leveraged Lending Guidance” in May 2018.   Unfortunately,  these efforts did not help to "quench the thirst”  of the market.   The Leverage Loans continues to climb.

However,  it is expected that Fed would not sit around looking helpless this time if there is a similar crisis.  It could have already prepared itself for QE4 to be implemented and ready to “print” money except this time,  instead of buying the “Mortgage-backed Securities (MBS)”, it could be buying or swapping the “Collateralized Loan Obligations (CLO)” from the Banks,  Institution and the big Fund players.    The buying of CLO may be more complex than MBS because the Corporations' assets are not as transparent and simple to deal  as home ownership.   Anyway,  it would appear that Fed’s “balance sheet unwinding”  exercise would  "die of premature death",   paving way for a more serious credit crisis to come in the future. 

Disclaimer:  This article is for information and  educational purposes.   Readers are advised to  conduct their own research and study to make their  own investment decisions.

References

1.  Leverage Loans in Asia  
2.  US Leverage Loans take 5 year round trip 
3.  Leverage Loans Monthly from Lipper Alpha 
4.  Exorhitant Debt of Corporations
5.  Leverage Loans not as safe as they were
6.  Record Bad Year for Leverage Loan

https://tinyurl.com/ybbyx3gn