Cumulative preference and perpetual shares are considered as a kind of debt instrument. They get fixed dividends, but the capital is not readily refunded because of its infinite time period.
In comparison, non-cumulative and convertible preference shares can be converted into equity shares after some time.
Hyflux offerred 6% cumulative preference shares (CPS) class A in Apr 2011. It was perpetual and Hyflux offered increase of dividend to 8% if these shares were not redeemed by 25 Apr 2018. Tradable in the SGX Main Board.
These were the following offers: (1) public offer (< $200 mil), (2) reserve offer (< $20 mil), and (3) private placement offer (< $200 mil). Reserve is for management and employees, whereas placement is for individual or corporate entities.
The shares were framed as liquidation preference shares. This implies that in the event of biz fold, these shares will get paid first.
DBS offered retail sales of stocks in May 2016. At that time, in 2015, Hyflux had ratio of net debt to EBITDA >10x. Also, the earning before interest, tax, depreciation, amortization (EBITDA) was negative in 2014. It was indicative of potential risk. Why did the 34,000 investors lost? Ser Jing attributed to teo reasons: (1) greed-and-fear, (2) ignorant.
Reference
- Hyflux – Investor relation (http://investors.hyflux.com/newsroom/20110413_112303_600_4A38112CA5F055CD48257871000FD2A5.2.pdf)
- This Singaporean tale of corporate ruin has 34,000 victims (https://www.bloomberg.com/opinion/articles/2019-04-09/blame-for-singapore-s-hyflux-failure-goes-beyond-investor-greed, 9 Apr 2019)
- Why do investors lose money on the stock market? (http://www.asiaone.com/money/why-do-investors-lose-money-stock-market, 30 Dec 2019)
SKC SCI 