21-07-2018, 01:04 PM
In the Townhall meeting presented, it is interesting to note the book value of Tuasspring is $1.47 billion. It has concession rights until 2038.
Let's look at the facts about the Singapore's power industry. i) It is over supplied by about 60% capacity. ii) Installation of solar panels and at roof tops are coming up. iii) Singapore's demand for power is increasing on average of 2% per year and our population is slowing in its growth.
IMO, it is likely for the next 15 years, the power generation industry is still going to struggle and this means losses. Hyflux made losses of 70 Million last year. Even if it is capable to reduce the losses to 50 mil annually, it still means a potential book value loss of 750 million.
To put it simply, Tuasspring's s$1.47 billion book value is just numbers and is not tangible. The auditors should ask for an impairment to be done. Any company with the least common sense will definitely not pay $1.47 Billion in book value. If I were to put a good estimate, I would probably buy the plant at only s$500 Million book value. In fact optimistically, I would try to purchase at zero book value because it seems Tuasspring is going to make 70 million loss annually for the next 20 years. The auditors of Hyflux definitely has to exercise some common sense and due diligence when evaluating the worth of its PPE.
The next order of question is how much will a damage will a 1 billion impairment do to the balance sheet?
The answer is that all shareholders and perpetual holders will be wiped out. Bondholders and secured lenders will actually be spared and have a high chance of getting their principal back. If I am a noteholder, logically I will fight for the liquidation of Tuas spring at any price tag of 500 mil and above; perhaps even demanding for the liquidation of Hyflux's assets to pay me back. After all, the capital of bondholders is relatively small at only $265 million.
Townhall PowerPoint Link: http://infopub.sgx.com/FileOpen/Townhall...eID=517134
Let's look at the facts about the Singapore's power industry. i) It is over supplied by about 60% capacity. ii) Installation of solar panels and at roof tops are coming up. iii) Singapore's demand for power is increasing on average of 2% per year and our population is slowing in its growth.
IMO, it is likely for the next 15 years, the power generation industry is still going to struggle and this means losses. Hyflux made losses of 70 Million last year. Even if it is capable to reduce the losses to 50 mil annually, it still means a potential book value loss of 750 million.
To put it simply, Tuasspring's s$1.47 billion book value is just numbers and is not tangible. The auditors should ask for an impairment to be done. Any company with the least common sense will definitely not pay $1.47 Billion in book value. If I were to put a good estimate, I would probably buy the plant at only s$500 Million book value. In fact optimistically, I would try to purchase at zero book value because it seems Tuasspring is going to make 70 million loss annually for the next 20 years. The auditors of Hyflux definitely has to exercise some common sense and due diligence when evaluating the worth of its PPE.
The next order of question is how much will a damage will a 1 billion impairment do to the balance sheet?
The answer is that all shareholders and perpetual holders will be wiped out. Bondholders and secured lenders will actually be spared and have a high chance of getting their principal back. If I am a noteholder, logically I will fight for the liquidation of Tuas spring at any price tag of 500 mil and above; perhaps even demanding for the liquidation of Hyflux's assets to pay me back. After all, the capital of bondholders is relatively small at only $265 million.
Townhall PowerPoint Link: http://infopub.sgx.com/FileOpen/Townhall...eID=517134