A new desalination and power plant in Singapore was projected to give 6% returns p.a. almost into perpetuity with highly risky junior debt totalling SGD 900m raised from 34,000 Singaporeans with the tacit support of the Govt.
There have been problems brewing with Hyflux for well over a year now.
They have tried to sell a plant, have defaulted in their commitments to the Singapore water agency PUB who has even served a notice of take over.
Whatever be the case, if pressure builds too high, Govt may need to spend tax payer money to bail out 34,000 retail investors who are predominantly all Singaporeans.
Next elections are in 2021 so Govt still has political capital to execute a bail out.
But in a small city state, this can also create ramifications because it will sully the investment image as well as it may be the first time that the Govt may need to bail out a private company in the history of Singapore that too a utility, sending a message that economically, things are not quite alright in the most basic sector in Singapore.
We cannot remember if Singapore has ever bailed out a private enterprise in the last 20-30 years.
It is actually extremely rare for a utility company to get into such a terrible financial shape anywhere in the world.
Within a span a few weeks, the disclosed debt and outstandings of this company have further risen by an additional S$ 800m.
"The catastrophic slump of Singapore’s much-vaunted water and power company, Hyflux Ltd., has stunned 34,000 retail investors who were lured by the promise of a 6 percent annual return forever from a company that seemed to have a gold seal of government approval.
At the heart of the debacle is Tuaspring, a desalination and power plant that cost S$1.1 billion ($809 million) and was heralded as one of the “national taps” for an island that had long depended on importing water and harvesting rainwater for survival. The company’s glowing prospects encouraged investors including Li Meicheng and Violet Seow to funnel some of their savings into S$900 million of junior debt to help fund the venture and group expansion."
For one, Hyflux has received proofs of claims worth S$3.5 billion from 73 parties – a sum that is much higher than the S$2.7 billion laid out in its explanatory statement dated Feb 22.
12 Mar 2019: What does Hyflux’s amended restructuring plan mean for retail investors? Experts weigh in
Just last week, Singapore Govt issued an ultimatum to the company and is about to take over the plant by 6th April 2019:
The bonds have been in trouble for more than a year when they had tumbled to low levels of S$ 76 levels. The company declared a loss for the first time since it's listing in 2001 for the year 2017.
Ever since things have gone down rapidly.
Meanwhile, China, Mexico, Ethiopia etc have all shut down the tragic Boeing 737 Max planes worldwide which now also includes Singapore because safety is paramount.
12 Mar 2019: Singapore suspends operations of all Boeing 737 Max planes after Ethiopian Airlines crash
Just last month, Singapore Airlines declared a 27% decline in Q3 profits.
In Oct 2017, when losses were incurred by Singapore Airlines, the CEO had said that they will do some cost cutting. It does not seem to have been disclosed if any job cuts were made in 2017. But tightening the belt has certainly been done.
The grounding of all 737 Max planes will hurt all the airlines including Singapore Airlines in this quarter and ahead unless this is urgently resolved within the next few weeks.
In Dec 2018, Standard Chartered Bank had laid off many staff in Singapore as well as in Dubai.
Home sales continue to drop and the entire economic trajectory of Singapore is steadily moving downhill. Unlike in 2009 and 2010 era QE was in full flow, private sector bailouts in US and EU as well, some money rushed everywhere including into Singapore.
However, today, China, India and almost all nations worldwide are clamping down extremely heavily on capital outflows, almost all countries are after tax evaders, corporates are not doing well globally thus having losses or defaults instead of profits, all countries want to manufacture/export but most don't wish to import (hint: tariff wars) which is hurting trade flows or at best changing them via railways instead of ships and all countries are having slowdown in their retail sales besides China and except for a few countries, banking systems are in tatters worldwide hence credit growth cannot happen impacting smaller populated nations like Singapore more than others.
Hence, these declines today are more worrisome than ever before because instead of moneys coming to places like Singapore, moneys will be leaving.
Hence, these declines today are more worrisome than ever before because instead of moneys coming to places like Singapore, moneys will be leaving.
12 Mar 2019: Landed home sales fell 5.8% to 1,780 in 2018
Resale condo transactions fell 7.8 percent year-on-year to 11,215 units in 2018, reported Singapore Business Review citing an Edmund Tie & Co report.
This comes as resale volumes in the second half of 2018 plunged 47 percent from the first half of the year.
12 Mar 2019: Resale Condo Transactions Down 7.8% In 2018
Unsold homes in Singapore have doubled during 2018 which indicates a mass exodus or some sort of fear of the future due to job losses or whatever may be the other reasons.
"The number of unsold private residential units in the pipeline here almost doubled from 18,891 units at the end of 2017 to 34,467 units by 31 December 2018, revealed a recent report from List Sotheby’s International Realty, Singapore."
20 Feb 2019: Unsold Private Homes In The Pipeline Rose To 34,467
DBS which is perhaps the largest bank in Singapore, had a decline of 50% during 2018 from it's original forecast on mortgage volume.
"Despite revising its original full-year forecast of $4 billion to $2.5 billion when it announced its Q3 financial results in November, the bank still missed its projection as the final tally was shy of $2 billion."
19 Feb 2019: DBS Bank Misses Mortgage Growth Forecast For 2018
Singapore news of a retail store shutting all it's locations in Singapore is today making headline news in Indonesia as well.
12 Mar 2019: Pablo Cheese Tart closes all stores in Singapore
It is extremely unfortunate what's happening in Singapore and none of this can be controlled easily now. As we said in our previous post, tax payers, investors, business people and workers will pay the highest price and expat workers in thousands will be sent back home thus creating a more severe cascading effect in the months ahead.
9 Mar 2019: Singapore: An Economy In Terminal Decline
9 Mar 2019: Singapore: An Economy In Terminal Decline
Because firstly, there is a global demand glut (whereby Singapore used to depend tremendously on trade flows that benefited it immensely over the last few decades, but with trade flows ebbing and China surging, it's a double whammy and hardly anything can be done against that), secondly, Singapore (like other cities such as Dubai or HK) used to rely way too much on foreign money, foreign workers, foreign tourists, imported food and water etc and once that starts declining then it will have massive ramifications which is what is happening in the case of Singapore as well Dubai.
It's a very tough situation for Singapore, it's citizens and their Govt because no solution is available except putting band aid on gaping wounds.
Singapore had an edge in the decades gone by when all tourism and trade to China or other Asian countries and their exports to US/Europe had to go through Singapore/HK etc.
Today, Chinese ports are 6 out of Top 10 ports in the world (plus 1 is HK) so they don't need any other port city or banking city etc. Hence, banking and trade finance will also shrink especially on countries that depended heavily on such trade flows like Singapore (and Dubai).
This article also alludes to our projection that Singapore though is at No 2 in the world but is being hurt by China ports and China's rise. They have 6 ports and 1 in HK of their own.
It doesn't make any sense for the Chinese to support Singapore or anyone else because they don't need to plus everyone is perilous times due to Trump's tariff tantrums anyways so they would focus their energies in helping themselves than anyone else which is to be expected.
12 Feb 2019: Top 10 Busiest Ports In The World: Chinese Seaports Dominate This List
Same for tourism, 20 years ago, if one had to visit China or elsewhere, Singapore and HK were probably the only spots to go through, there were not many alternatives to travel.
Now, we do. We can fly direct from hundreds of cities straight into China which is a huge nation and is developing extremely rapidly.
Additionally, most trade fairs were either in HK or Singapore but now they are held mostly in China.
Now, we do. We can fly direct from hundreds of cities straight into China which is a huge nation and is developing extremely rapidly.
Additionally, most trade fairs were either in HK or Singapore but now they are held mostly in China.
It is not Singapore's fault but the way the new world is shaping up, with China at it's fulcrum, which is like a giant black hole and will suck everyone and their businesses, especially of those who depended and flourished on the Chinese traffic and money flows going through HK or Singapore that are now flowing directly into China.
Another comparison we can make is to expensive Switzerland, until a few years ago, Switzerland relied on just a couple of things, (illegal) banking which was highly profitable for decades post Nazi era, expensive chocolates, expensive watches and expensive tourism.
It used to work in Switzerland when the world was doing fine and kept growing until the oil prices plunged post 2014, many hotels shut in Switzerland, chocolate sales dropped, sales of watches dropped and factories saw closures, banking money left back to Russia, America or Arab world and Switzerland is not the same as it was a decade ago with banks shutting and what not.
From Nestle to Novartis to Credit Suisse to GE to Blackrock, all have moved thousands of workers out of Switzerland.
Never mind the fact that over half the banks in Switzerland have shut, merged or sold themselves to someone else over the last decade or so.
While in Singapore, unfortunately, this current situation is similar to that of Switzerland because Singapore and HK are more expensive due to their limited talent pools, small size of economy, population and land mass, therefore, they will get hurt the most in Asia plus they don't have any negotiations or trade deals (unlike Switzerland) with China aside from ASEAN in which China is not there.
We can only advocate that Singapore firm up it's ties with China and all other Asian nations because the time is running tight.
Singapore needs to focus on trade heavy nations and not labour heavy (providing cheap labour) nations because while Singapore must work hard but should not compromise on it's ethnicity, culture and past traditions whose impact is much more negative in smaller nations than larger ones like Canada or America.
Singapore needs to focus on trade heavy nations and not labour heavy (providing cheap labour) nations because while Singapore must work hard but should not compromise on it's ethnicity, culture and past traditions whose impact is much more negative in smaller nations than larger ones like Canada or America.
Singapore needs the trade flows in order to remain afloat. And it needs it NOW.
Aside from being close to China and friendly to Malaysia, regardless of financial consequences or any other past concerns (so at least the business people can flourish or sustain), like Switzerland, (Switzerland faces stark choice on EU integration deal) who is ensuring that their trade relationships continue with the neighboring large EU countries, Singapore has no other alternatives because banking will keep shrinking while cars, food and rent will remain super expensive due to limitations of land and manufacturing, hence the only way is to ensure more trade amid healthy mutually respectful relationships with neighboring nations and focus on high value activities like IT and AI potentially in conjunction with China who are the largest in every single sector and still growing.
HK is leaning more and more towards China which is what is keeping them afloat but alas, Singapore is caught between a rock and a hard place and has no other option left other than engaging with China.
if such a well managed, efficient and corruption free country such as Singapore will decline then what's the hope for other poorly managed countries with majority of the world's population residing in them. What kind of future are we staring at?
ReplyDeleteDear JM,
DeleteThank you for your comment and also for visiting.
The reason that we have a global crisis is not due to whether some company or country is inefficient or incapable or is corruption free etc though such moral victories were credited in the past for successes.
There is no country which is not corrupt or does not do insider trading or nepotism etc but question is whether macro factors like employment, trade flows etc are in their favor or not. Rest everything can be managed or contained.
Since 2014, there are multiple problems that are all converging into a global crisis which won't leave any country untouched.
Main problem in this world is of global over population due to which companies went under the garb of globalization around the world looking for the cheapest labour force to make more money for themselves at great social cost to their own nations. Because no one until date except very few people understand what globalization was all about.
It was basically to compete with other companies where they had an advantage so instead of trading with them, other foreign companies went and joined them to produce a glut of products thus driving prices further lower. TV's, mobiles, computers etc. are great examples of that.
Now we are going through the withdrawal symptoms, we lost jobs in pretty much all "developed" countries (I would call them greedy, stupid and short term countries) who allowed their jobs to be taken over in other countries, thanks to the unlimited greed of CEO's and politicians.
Now when they wish to bring those jobs back to "developed" countries or those nations who lost manufacturing, it's simply not so simple nor possible in a profitable manner because of this thing called inflation plus lack of jobs leading to lack of demand locally in those countries. and guess what, other nations don't wnat to import them because they lose the jobs! See the merry go round? We haven't even got into tariffs and bans and wars or terror yet.
Costs are high, demand has plunged (due to above cited joblessness), debt has gone through the roof, barriers have risen and so on. This doesn't allow anyone to manufacture or set up a new business or factory even if labour goes back to zero because investment money is not available, barriers and tariffs are there to hinder growth and trade has plunged from $19.2 trillion in 2014 at its peak to less than $17 trillion now. while population keeps rising. So whoever says things are ok and GDP is growing etc is LYING.
DeleteSince trade flows are changing, therefore, smaller countries that depended on such trade like Dubai, Singapore, HK have nowhere to run. They simply cannot do much except getting crushed since everyone wishes to reduce imports and no one wants to buy but make locally.
This is inspite of rising population.
And we come to the final reason, jobs.
There are no jobs anywhere. So we see wars in Middle East, protests in Spain and France and Sweden and across EU, problems of all sorts all over but most importantly no job creation but demand destruction all around us in the form of bans, terror, refugees, currencies plunging, job cuts, business closures and the list goes on and on.
This demand destruction can also be correlated to the price of oil in some absurd manner since 2014 when I first predicted this global glut, due to lack of jobs which will lead to demand destruction in all sectors in all countries and it has happened exactly as I had envisaged.
What Trump and China and Russia etc are doing, I call it "insulating" themselves from the global catastrophe that is coming upon us.
DeleteBy putting tariffs Trump will make America more resilient which is why I had initially agreed with his steel tariffs. China is 100% insulated and has a parallel world insulated from whatever happens outside, just ignore the noise and look at facts of the last 20-30 years. Russia is like a twin brother of China now, so to speak, because they too know that world is going to go upside down. Philippines is also doing exactly what I believe to tie up with China and is going ever so closer and so rapidly is tying up with China. Sri Lanka, Pakistan, Iran, Venezuela, African nations and now Italy, UK an dMalta too are all doing the same because they don't have a choice but are not yet completely "insulated" from a global economic collapse.
Rest of the nations, besides China, Russia, Philippines, may God bless them all.
The future of children of today will be what you see in Paris, Venezuela, Sweden or Zimbabwe, which is economic chaos all around. No matter whether you are rich or poor, you are doomed, unless you leave this planet. :)
Really regret to be the bearer of the bad news but please don't shoot the messenger. :)
I am afraid there is almost no way out of this debt quagmire, deglobalization, job cuts, over population, wars, terror, demand destruction, banking collapse, currency nightmares, disarray in prices of shipping to commodities, collapsing businesses, capital controls, clamp down on corruption, tax amnesties, jail for tax evaders globally etc that is all combining to create such an evil force that none of us can prevent what's coming next and actually arrived in 2008 but was delayed for a few years due to QE and bailouts of the private sector with even more debt and started collapsing since 2014 and now we are in the midst of a full blown collapse.
As far as Singapore is concerned, it is losing due to trade flows declining in trillions and has no choice but to delay the inevitable by joining very closely with China else the inevitable will occur now (as it has already begun) and can only get worse.
In history, why Rome, Cairo, London were important was due to trade flows, and why Singapore, Dubai, HK were important in the last 20-30 years is also due to trade flows. But we now have the added problems of debt and terror and bans and tariff bars which were never so huge in the centuries gone by due to the negative impact due to globalization.
We don't see any other solution even with the efficiency and understanding of Singaporean Govt. If anyone sees a solution on what Singapore could do to prevent this collapse, I am happy to listen.