Hyflux: 6% perpetual Class A preference shares.

I owned units in Hyflux Water Trust in the past. That investment did very well for me and, unfortunately, the Trust was privatised not too long ago. Read blog post here.

Back in 2009, I was also considering between Hyflux and E-pure as beneficiaries of a global search for solutions to water problems. I went with E-pure simply because of valuation reasons. I have no doubt that Hyflux is a strong company in a strong industry too except that its valuation has always been too rich for me.

However, the news that Hyflux is issuing preference shares with an annual dividend rate of 6% is somewhat surprising to me. In an environment of low interest rates, isn't paying a 6% interest a bit expensive? It would only make sense to do this if borrowing from a financial institution would be costlier and it would only be costlier if the company and/or its business is perceived to be high risk.

The only preference shares that I have ever owned is DBS NCPS 6%. This was something I bought 10 years ago. Intuitively, and we won't be too wrong to say this, DBS is less risky compared to Hyflux. Indeed, if DBS should default, I think that's the end for Singapore.

In a nutshell, if I were to invest in Hyflux, it would not be for income, it would be for growth. To invest for growth, I would not invest in Hyflux preference shares. To me, it is that simple.

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Hyflux to offer $200m of perpetual preference shares
Wednesday, 13 April 2011

© 2011 - The Edge Singapore

Mapletree Commercial Trust: Strong demand.

I have been asked by many people if I would be interested in the IPO of Mapletree Commercial Trust.

While I am a regular shopper at VivoCity, I am not enthusiastic about the IPO of this Trust. Why? The distribution yield of 5.5 to 5.9% seems a bit low. This is based on the price range of $0.84 to $0.91 per unit.

Mapletree Commercial Trust to raise $924m in IPO: Update
Wednesday, 06 April 2011

© 2011 - The Edge Singapore

It has just been reported that the initial public offering has already been five times covered and the IPO is likely to be priced between the midpoint and top of the price range of $0.84 to $0.91 a unit.

It seems to me that there is still a lot of liquidity out there searching for better returns. Could we see a spillover effect to other S-REITs since there would be a lot of excess liquidity as this IPO is expected to be many times oversubscribed? Why not?

Mapletree Commercial Trust’s $924m IPO 5 times covered
Wednesday, 13 April 2011

© 2011 - The Edge Singapore