Hyflux 2018 retail perps 'unlikely' to be called in April, says analyst

THE market seems to be pricing in the fact that Hyflux will not redeem its S$400 million 6 per cent retail perpetual securities, or perps, at the first call date of April 25.

After some wild price swings over the past few days, the 2018 perps of the stressed water project developer traded at 76.5 cents to the dollar on Thursday. Usually, bonds will trade closer to par as they near their first call date,

A second S$500 million tranche of 6 per cent retail perps callable in 2020 closed at 60 cents to the dollar on Thursday.

Ang Chung Yuh, iFast senior fixed income analyst, told BT that at these prices, Hyflux is unlikely to call the first tranche of perps callable in April.

That's because the step-up interest rate of 8 per cent per annum that Hyflux would incur for missing the call date is "not that hefty" and actually considered "cheap" for their financial standing, he said.

Responding to queries from The Business Times, a spokesman for Hyflux said: "Hyflux has not missed a single interest payment and is expected not to. One of the options from the partial divestment of Tuaspring would be to redeem the preference shares which are perpetual in nature and has a step-up option."

Hyflux said it could not comment further as it is in a black-out period until it reports its fourth quarter results, which will be out on Feb 27 or next Tuesday. It will give an update on its divestment plans then.

To be very sure, markets are not perfect. Neither has there been any new information from Hyflux that would explain the price movements this week.

The perps are also traded on rather light volumes which can exaggerate the prices moves.

But one very simplified way of thinking about Hyflux's cost of borrowing is to look at current yield.

Right now, the 2018 perps are trading at a current yield of 7.8 per cent. This is the sum of the 6 per cent annual interest payment divided by the perp's market price. Loosely, Hyflux is already looking at a borrowing cost of close to 8 per cent on these perps.

On top of that, the 2020 perps are trading at a current yield of 10 per cent. In other words, if Hyflux were to issue perps of a similar structure right now, it would have to face a borrowing cost of more than 8 per cent.

Mr Ang said: "In any case, the pricing of the Hyflux bonds and perps are clearly indicating that investors have serious doubts over the company's ability to service its debt obligations.

"I'm worried about whether they can meet their interest payments over the next 12 months."

Hyflux has another payment coming up on Sept 7, when its S$100 million 4.25 per cent Series 008 notes mature.

As at Sept 30, Hyflux held S$222 million in cash, excluding cash in assets held for sale and restricted bank balances.

In October, Hyflux announced the sale and partial leaseback of its Tuas manufacturing facility. Completion of the transaction is pending approval of relevant authorities, upon which the group expects to receive sale proceeds of S$95 million.

Correction: An earlier version of this story said that As at Sept 30, Hyflux held S$66 million in cash, excluding cash in assets held for sale and restricted bank balances. It should be S$222 million instead. We are sorry for the error.