Hyflux Perpetual 6%

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official opening of Tuaspring desalination plant
Hyflux is issuing $300mil perpetual at 6% which will be increased to $500mil if it is oversubscribed. Their placement tranche was 4x oversubscribed and hence they increased it from $50mil to $165mil and it was closed within a day. I guess everyone by now knows that its is a perpetual bond that has a step up in 4 years time. It is also cumulative and compounded with dividend stopper. Mr IPO did a very good write up here.

The question now is what is the financial leverage of Hyflux and is it worth the risk to invest? For me personally, how I assess an issuer is to first look at their total equity. Total equity is the "net asset" that is left after deduct all liabilities. It shows us how much a company has to play with in terms of solvency.

From their latest quarterly statement you can see that their total equity(31 Mar 2016) is S$1.24bil. However, we have to deduct the perpetual capital securities from the total equity to make it more accurate as perpetual bonds are treated as equity and not debt. The value of their existing perpetual is S$469mil. Don't forget, Hyflux has also issued preference shares too:

Which means total other share capital(carrying value) is Perp value + Preference share value which is 469,096 + 392,569 = S$861mil.

I like to use net debt to equity to calculate an issuer's financial leverage as it takes into account their cash. So in this case, their net debt to equity ratio should be (long term debt + short term debt - cash and cash equivalent)/shareholder's equity - other share capital).

Which translate to (1,024,497 + 373,419 - 181,471)/(1,228,618 - 861,665) = 1216445/366,953 = 3.315x

If we base our analysis solely on net debt to equity alone, and compare among the recent bond issues: Aspial, Perennial, Oxley and Hyflux. The most leveraged will be Oxley(3.78x), followed by Hyflux(3.315x), then Aspial(3.118x) and lastly Perennial(0.846x). So please do take note of all perp and preference shares issued by companies and deduct them accordingly so as to get a more accurate picture.

Of course we cannot base our analysis solely on one ratio. We still have to look into their interest coverage, future prospect, business sector etc. I will most likely still try to bid some tonight, as I like how 70% of their revenue comes from Singapore and that 35% of Singapore water supply comes from Hyflux. Their recent 750mil contract with NEA to build, operate and own a WTE(waste to energy) plant in Tuas will also act as a catalyst which is also one of the reason why they are raising more money now. Public tranche bidding closes tmrw at 12pm. To each his own and happy analyzing.

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