(20-04-2011, 02:57 PM)piggo Wrote: [ -> ]How will their rating be affected if they don't pay? Unlike bonds, they are under no obligation to not let the dividends accumulate. They are also under no obligations to call at any specific date
Firstly Hyflux is not a financial instituion or a REIT that requires a rating. Any rating is done by the lenders internal assessment. If they could not pay their CPS, any lender would view them to be financially weak and hence will ask for a much higher IR above the prevailing borrowing rate to want to lend to them.
The way I see it is that it would take a lot for Hyflux not to pay the CPS
dividend. Hyflux has a high CAPEX business model. In the event that they could not pay the dividend then future CPS is out of the question and borrowing cost from the banks would be substantially higher. In this situation as a last recourse is do rights issue or placement in order for it to continously grow. placement may also be at huge discount.
CPS is better than common share at least for some years coming, that's for sure. Whether CPS is a good investment, that is another question.
Simply because they delay payment doesn't mean they are financially weak. They could choose conserve cash to pursue other profitable ventures. What's stopping them from expanding more aggressively using relatively cheap $$ from the cps?
6% is cheap? interest rate must be sky-high and the common share must be sub-dollar....
(20-04-2011, 04:34 PM)piggo Wrote: [ -> ]Simply because they delay payment doesn't mean they are financially weak. They could choose conserve cash to pursue other profitable ventures. What's stopping them from expanding more aggressively using relatively cheap $$ from the cps?
The dividend that they conserve is small potato compared to the capital requirements that they will need to have to continously expand. hence they will still need to borrow lots of capital. where is it going to come from? if they are not financially weak and don't pay dividends to CPS the shareholder will also not get paid. do you think shareholder will sit idle. getting paid through only capital appreciation and no dividends is idealistic and not proven to be favourable in sgp mkt.
6% is quite reasonable for a 'debt' which they never have to pay back.
A bond offering could have generated 2-3% interest rates but Hyflux will have to fork out $$$ to repay it eventually. Without HWT, it will be difficult to regenerate capital efficiently to repay bond-holders. It could have turned to placements but that would have diluted shareholder's stake. Rights issue would not be favourable since existing substantial shareholders like Ms Olivia Lum (31% stake) may not be able to afford to pay for her rights shares.
So if bank loans cannot, rights cannot, placement cannot, bonds cannot - you are left with CPS which would fit perfectly with Hyflux present needs. What I mean by cannot is that the instrument may not be entirely suitable for Hyflux at this stage.
Pls correct me if I am wrong.
(Not Vested)
For a loan where you can defer interests payment indefinitely, and repay principal only when you feel like it, 6% feels low compared to the ncps of banks...
The Mgt probably had a lengthy discussion on how best to raise $$$...
In the words of Olivia Lum:
“We continually evaluate different options of financing for our growth strategy, and view the
Class A CPS offering as one of the more suitable options for our needs, and more importantly,
non-dilutive to existing Hyflux ordinary shareholders,†said Ms Olivia Lum, Group President &
CEO of Hyflux Ltd.
(20-04-2011, 04:59 PM)piggo Wrote: [ -> ]For a loan where you can defer interests payment indefinitely, and repay principal only when you feel like it, 6% feels low compared to the ncps of banks...
then the share almost offers no value for common shareholders.