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Hyflux – Singapore Government Bailout Petition (Part 2)

In Part 1 of the article, we started on the topic of a petition that requested that the government bail out Hyflux as it is just “rightful government action”.

The actions of both Iceland and USA in response to the banking crisis a decade ago was also compared. Essentially, one opt to let the company fail, the other bailed them out.

Should the government bail out Hyflux?

As much as the petition tries to describe that it is the “rightful Govt action”, the petition is simply a bailout request.

Within 2 weeks, more than 2000 have signed up for their support for the bail out, even a former presidential candidate staked his support for the bail out, claiming that the restructure terms were unfair for the for retail investors.

Here are some of the comments from the petition, and they can categorised them into 3 categories;

  • Lack of Diversification

By placing most of their retirement funds in one investment, especially when you don’t know much about investing, is plain dangerous. Many people knows how to say “Don’t place all your eggs in one basket.” Sadly, history has shown that not many people does that.

 

  • Lack of Understanding

 

 

It seems that there are many investors who don’t understand the nature of the company. The “market rate” for dividends. As well as the finances for Hyflux. Many simply perceive that Hyflux is a good investment.

6% dividend yield for a company is on the high side. Even as a note, it is also on the high side. 6% yield is the expected returns of a junk bond. Argentina’s 100-year bond gives 7% yield, from a government that has defaulted 7 times in the past 30 years.

 

Hyflux’s finances has not been pristine for years. They have had cash flow issues for years.

It seems many investors simply don’t know what have they got themselves into.

 

  • Lack of Responsibility

Looking through all the comments, there are many blaming the government. Claiming that the government messed up the TuasSpring Desalination Plant project. Some blame CEO Olivia Lum.

This reminds me of a speech by Jim Rohn, “You (the investors) are not on the list”.

These are shareholders, owners of the company. Certainly nobody forced them to invest in Hyflux.

Is this the message that we want to send to the future generation? Demand that someone else fix our own mess?

At the expense of the country as well. We are talking about billions.

 

A Deeper Thought

To demand that the country draw from their coffers to fix the mistakes (and greed) of a group is simply alarming.

This petition came up because there has been a precedent of government intervening on the side of retail investors, most notably, starting from the Lehman Brother’s minibond saga.

This sets a dangerous trend. Is the government going to bail out investors every time a retail investors suffer losses?

Does this give corporate and investors alike, a false sense of security? A too big to fail type of security? Thus allowing them to take unnecessary and irresponsible risks.

 

Lessons Learnt

  • Diversify. Don’t over-diversify, but nonetheless, diversify.
  • Only invest with money that you can lose.
  • Invest in things you can understand. If you cannot understand it, don’t invest in it.
  • Take responsibility of your trades. Not doing so exposes you to unnecessary losses and opportunity cost.
  • Don’t have the too-big-to-fail mentality

 

Final Thoughts

The current offer by SM Investments gives investors a chance of getting 10% of their capital back, which in all honesty, is a huge loss. Even Benjamin Graham don’t employ that much margin of safety.

Well, we can’t blame SM investment for giving such an offer. It is business and I doubt many of the 34,000 affected investors will offer the fair asset value that they are asking for if they were in SM Investment’s shoes.

Why buy $1 when you can get it for, let’s say $0.50 or even lesser?

The petition brings up something very important as well, which is to keep national water asset within the hands of Singapore.

I guess, the government can intervene to keep the plant away from foreign powers and only to keep it within national ownership and not to bail out investors.

I wonder, if Hyflux can live to fight another day, will this be the start of a turnaround? After all, founder and CEO Olivia Lum is the largest shareholder and she lost quite a lot of networth. Surely she wants to get them back?

02 comments on “Hyflux – Singapore Government Bailout Petition (Part 2)

  • Sinkiw , Direct link to comment

    I would say those 2007-2008 structured products had extenuating case for some level of compensation, which MAS basically swept under the carpet by fiat, unlike regulators in NY, London, HK & Sydney, among many others.

    But for this preference shares & perpetual securities, even pro-investor regulators in NY & London will find it hard to excuse investors. The only possible issue is if there was any mis-selling where advisors/salespersons specifically indicated it was “safe”, “investment grade”, “conservative”, “suitable for retirees”, “govt backed”, etc. Moreover such statements would definitely have been verbal, and when it came time for investors to acknowledge or approve the black & white, it would have been indicated as equitable securities (or its equivalent).

    The prefs & perps themselves were not officially classified as low-risk products, neither were they officially rated as say AA or AAA investment grade, factors which many of the previous structured products had … and which those regulators in overseas exchanges used to whack the FIs and secured some compensation for the investors.

    • Invest Travel Play , Direct link to comment

      At this stage, there will likely be ball-throwing, with the investors claiming that they were misled to believing that they are safe products. On the other hand, the salesperson will claim that they did their due diligence to explain to investors. There is no way for us to know. For all you know, the truth could be somewhere in between.
      Then again, if you don’t understand what it is, why buy it?

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