22-06-2018, 08:58 AM
The root of the problem is that TuaSpring is bleeding. It is bleeding cos USEP<(Costs+All other expenses).
Even if everyone haircuts etc, the root problem is still not gone i.e. USEP < Costs even if all expenses goes to 0. TuaSpring is still going to bleed. As long as it bleeds, noone will buy it at book.
So the only way to solve the issue is either for USEP to increase (it has been, but unlikely to spike in the short term from the 100s to the 200s for profitability unless all gencos cut output together) or Costs have to go down drastically.
The only way for Costs to go down is for an arrangement between the gencos and the regulators where the vesting arrangements are modified. Unfortunately the industry is spending 1bio p.a. burning LNG to generate power that noone needs. Talk abt being environmentally friendly...
So
1. Insolvency is guaranteed in present state if all creditors demand liquidation.
2. Insolvency will arrive eventually even if there's no liquidation as long as TuaSpring burns $100mio p.a.
3. The whole mess can be solved quite easily if there's an arrangement between the industry and the regulators as a virtuous cycle then emerges
a. Costs go down. Fixed costs still incurs.
b. Supply decreases and USEP rises
c. PV of TuaSpring recovers as USEP-Costs>0
d. If debt load is cut with help from all creditors, TuaSpring becomes profitable, helping to push c) up.
e. With a more optimistic environment where industry dynamics restores, TuaSpring should still be attractive for outside capital.
The court filings have revealed some optimism over the number of parties that can provide aid, but the most important piece is still missing i.e. is the industry going to work together or continue to kill each other, and is the regulator open to some discussions.
Even if everyone haircuts etc, the root problem is still not gone i.e. USEP < Costs even if all expenses goes to 0. TuaSpring is still going to bleed. As long as it bleeds, noone will buy it at book.
So the only way to solve the issue is either for USEP to increase (it has been, but unlikely to spike in the short term from the 100s to the 200s for profitability unless all gencos cut output together) or Costs have to go down drastically.
The only way for Costs to go down is for an arrangement between the gencos and the regulators where the vesting arrangements are modified. Unfortunately the industry is spending 1bio p.a. burning LNG to generate power that noone needs. Talk abt being environmentally friendly...
So
1. Insolvency is guaranteed in present state if all creditors demand liquidation.
2. Insolvency will arrive eventually even if there's no liquidation as long as TuaSpring burns $100mio p.a.
3. The whole mess can be solved quite easily if there's an arrangement between the industry and the regulators as a virtuous cycle then emerges
a. Costs go down. Fixed costs still incurs.
b. Supply decreases and USEP rises
c. PV of TuaSpring recovers as USEP-Costs>0
d. If debt load is cut with help from all creditors, TuaSpring becomes profitable, helping to push c) up.
e. With a more optimistic environment where industry dynamics restores, TuaSpring should still be attractive for outside capital.
The court filings have revealed some optimism over the number of parties that can provide aid, but the most important piece is still missing i.e. is the industry going to work together or continue to kill each other, and is the regulator open to some discussions.