20-04-2011, 10:04 AM
(20-04-2011, 09:03 AM)Thriftville Wrote: I think Hyflux may consider offering another $400m of preference at 6%. Then use the money for redemption?
Hyflux net profit margin is about 10%. So I guess they are still able to squeeze out some money to pay off pref shareholders.
What you propose sounds a lot like EUNetworks (former Global Voice), which have issued new bonds to redeem old ones, and essentially not eliminating the problem of paying a high coupon rate on its existing debt/preference shares.
And we should also not confuse profits with cash. A profit margin of 10% may also not be consistent depending on the nature and type of project, and cash flows may be erratic due to the nature of Hyflux's business.
To add on to what dydx has said, the $400 million will be hard to come by for Hyflux unless they have positive FCF for the 6 years after the issuance of their CPS. Even then, they would most likely pay down their debt first (i.e. bank loans) rather than reserve money to specifically pay off the CPS. If they can lower their gearing and improve their BS, then banks would be more willing to roll over their loans and/or lend them more money.
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/