Saturday, 28 November 2015

China Fishery’s Trouble with HSBC

HSBC has recently filed a winding up application on China Fishery to the High Court of Hong Kong. It pertains to china Fishery’s (CF) difficulty in servicing its debts. From China Fishery’s AR 2014, it can be seen that China Fishery had US $303 Mil of debts which needs to be settled within this FY and it has paid US $131 Mil thus far. Similarly, in the financial year before, CF had a US $505 Million debt but was successfully rolled over.

Chna Fishery's Debt Profile
The trouble it seems is that one of its 5 lenders, HSBC, is refusing to continue to roll over its debts. One problem with CF is its inability to have a quick cash conversion cycle. It takes a while to convert its inventories to receivable and then to cash. With just one of its 5 lenders no longer allowing the rolling of debt game, CF is experiencing cash flow problems.

It comes to show how important cash flow management is because banks are free to “take the umbrella away” anytime and leave you in cash flow trouble. Ironically on a full FY basis, CF is able to produce approximately US $165 mil of cash before working capital changes. With about $18 mil in bank expenses, $35 Mil bond payments and income taxes, the company is able to generate about US$112 mil. In addition, from now to 28 March 2016, CF will receive US $61 million in inventory/cash from its supplier. Hence it seems had HSBC allowed another rolling over, it is likely CF will be able to partially pay off its debts.


When analyzing a company, It will be good to see the debt profile. Given the current economic slowdown, it seems banks are now not hesitant to take away the proverbial "umbrella". This will be precarious for companies who are debt laden and rely on the rolling over of debts to support their operations. For CF's case, only one of its five lenders had decided not to play ball, and CF is now in trouble.

Sunday, 8 November 2015

Getting to know: Home Protection Scheme (HPS)

The Home Protection Scheme (HPS) is a mortgage-reducing term insurance which covers an individual’s liabilities on home loans in the event of death or permanent disability. Its premiums are affordable and is a government initiative. For every $100,000 coverage under HPS, the annual premium is about $76; that is cheaper than most term insurance.


Currently home owners making HDB loan repayments through CPF-OA have to be enrolled into HPS. Exemptions from HPS is allowed if one shows proof of other forms of insurance coverage. However, in my opinion, the HPS is the most affordable plan and it is difficult to find a similar plan at a lower dollar to coverage rate. It is good too for HDB owners servicing their home loan through a bank to consider the HPS.

Why it is important to learn about HPS

Often, financial planners may unwittingly advise to obtain more coverage (through whole life plans) on the pretext that you are now a home owner with a housing liability (home loan). As many may not be aware that they are covered under HPS, as the funding of premiums is through CPF savings, they may land up in a situation of being double covered - under HPS and a more expensive insurance plan recommended by the adviser. Hence knowing if you are covered under HPS reduces your insurance expense.

To summarise, the HPS covers an individual’s home liability loan. You have to be insured under HPS if the servicing of your housing loan is through CPF-OA, following this reasoning, one can safely presume many new HDB owners are in fact covered by HPS (I wonder how many are aware of this). Furthermore, HPS is one of the best dollar for coverage term insurance, being priced at approx. $76 per $100,000 coverage.

For majority of Singaporeans, it is important to be aware if we are covered by HPS before embarking on insurance planning. It ensures optimal planning and prevent us from falling prey to purchase seemingly more expensive private insurance. To know if you are covered under HPS, do check your CPF statements to see if an annual HPS premium is deducted from your CPF savings. Alternatively, feel free to email CPF to make an inquiry.

Saturday, 7 November 2015

Lesson from Tiger Airway's takeover by SIA

Image result for Tigerairways image

Singapore Airlines has made a takeover offer $0.41 per share for Tiger Airway. While it sounds like a good deal representing a 33% premium; shareholders who had “patiently” held Tiger since IPO and subscribed to every round of rights would have paid an average cost per share of $0.67 per share. For that “patient” shareholder, the acceptance of the takeover is a 38.8% negative return.

Turning back to 2010, one will remember how hot Tiger Air’s IPO was. Riding on the budget airline craze, SIA did an IPO for part of its stake in Tiger. The IPO was heavily oversubscribed (similar to a recent IPO). However, time and time again, history has shown that business fundamentals prevail and not the popularity of the IPO, the anticipated growth did not materialize and instead Tiger Airways bled massive cash. Events have gone full circle and now SIA is buying the remaining stake it does not own in Tiger for a song in 2015.

No matter how, the fundamentals of a business always prevails and airline stocks are a terrible investment unless in extremely depressed prices. It is a commodity industry where price is the main factor and yet airlines have to pay hundred of millions to continuously improve their fleet. As Richard Branson once quipped: “If you want to be a Millionaire, start with a billion dollars and launch a new airline.

For many Tiger shareholders, it may be time to reluctantly accept the offer as without the support of its strong parent (SIA), Tiger may not be able to survive.  In the short to medium term, Tiger will take delivery of s$2 Billion worth of Airbus 320 until 2025. Even though Tiger has turned around, it seems unlikely Tiger will generate that much cash by 2025 to finance the order; hence becoming a wholly owned subsidiary under SIA's wings will help it financially. A lose-lose proposition is in store for the foolish patient investor.