Singapore rich bond buyers hit by worst-performer in Hyflux

Hyflux, founded by Singapore entrepreneur Olivia Lum, posted its first annual loss last year since listing in 2001.

SINGAPORE: Singapore’s individual investors have been burnt by water treatment firm Hyflux Ltd.’s perpetual bonds, the worst-performing local currency retail note this year among 10 such securities listed on the city’s exchange.
     
Hyflux, founded by Singapore entrepreneur Olivia Lum, posted its first annual loss last year since listing in 2001.

The stumble follows expansion in recent years in the energy business, beyond its mainstay building desalination plants.

Hyflux has said that oversupply of gas in Singapore depressed electricity prices and the weakness in the power market will likely pose challenges for its performance in 2018.
     
Singapore’s wealthy investors, stung by a series of unprecedented defaults in the past two years, remain vulnerable amid rising interest rates. The nation’s local-currency bonds are set for the first quarterly loss since late 2016, according to a Bank of America Merrill Lynch index. 

Hyflux, whose female founder was a poster child for local entrepreneurs, adds to signs of pressures that smaller borrowers in the local debt market face.

the company’s foray into the power business, and subsequent attempts to offload some of those assets, have complicated matters. The city’s electricity market was progressively liberalized since 2001, leading to more competition.

"While the losses from the power market affect all power generation companies in Singapore, the situation is not expected to be permanent as gas contracts will gradually expire and electricity demand will eventually catch up with supply,” Hyflux said in an emailed response to questions from Bloomberg. 

“The long-term outlook for the Singapore power market is still a positive one.”

Hyflux’s S$500 million ($380 million) 6 percent perpetual securities, which have no maturity date, have fallen 25 cents on the Singapore dollar this year to a record low of 55 cents, according to exchange prices. Hyflux sold S$329 million of the securities to the public in Singapore, and the rest to institutional investors and employees.
     
The company’s S$400 million preference shares, which pay a 6 percent dividend, fell to near a record low at S$76.6, after issuance at a par value of S$100 in 2011.
     
A delay in the sale of Hyflux’s single largest asset -- Tuaspring, which combines Southeast Asia’s largest desalination plant with a gas turbine power plant -- is likely to prevent the company from calling its preference shares on April 25, it has said. 

The company, which posted a loss of S$116.4 million in 2017, appointed advisers on the proposed partial sale of the loss-making plant.
     
The company said in its email that “it makes sense” for the redemption to be deferred until the sale is completed.
     
“Given the current sector dynamics, there is uncertainty over what price they can sell Tuaspring at, and when,” said Ezien Hoo, a Singapore-based credit analyst at Oversea-Chinese Banking Corp. “Hyflux needs to sell the plant to alleviate financial strain.” - Bloomberg