As more international creditors lay claims to the troubled Singapore-listed firm, Hyflux is working out a new plan to stave off liquidation. A previous plan to restructure over $2 billion of debt is dead in the water, after Indonesian conglomerates Salim Group and Medco Group announced on April 19 that they had ended plans to rescue the distressed water treatment and power company.
The Indonesian firms said that they are suing Hyflux, while Hyflux itself filed a writ of summons in the Singapore High Court on April 15 against its former rescuers. Both sides have accused each other of reneging on the restructuring agreement.
Unless a new white knight can be found to rescue Hyflux, the chances of liquidation “look pretty high”, said Nitin Pangarkar, academic director of the MBA programme at the National University of Singapore. “There are multiple claimants that might scare off any potential investor.”
Hyflux’s liabilities are mounting with new claims being filed and the assets are not sufficient to cover the liabilities, Pangarkar said.
On Tuesday, Hyflux revealed that it faces $65 million of potential claims by Tahlyat Myah Magtaa (TMM), which operates Hyflux’s desalination plant in Magtaa, Algeria. This facility processes 500,000 cubic metres of water per day and is the world’s largest reverse osmosis desalination plant.
TMM has demanded immediate repayment of $8.5 million from Hyflux and its Hydrochem subsidiary. This $8.5 million claim is related to a counter-guarantee facility between Hyflux, Hydrochem and Arab Banking Corporation (ABC) which dates back to July 2015.
Hyflux says that it has “also become aware” of a claim for $56.5 million by TMM which is related to a performance bond arranged by BNP Paribas El Djazair. In 2009, BNP Paribas, ABC and Calyon were the lead arrangers of performance bonds which provided advance financing for the Algerian plant. Hyflux added that BNP Paribas has not issued any legal notice over this claim but will provide further updates “as and when it receives such notice”.
“The claims by ABC and BNP Paribas are expected to have a material impact on the financial performance of the group,” Hyflux admitted, adding that it disputed TMM’s claims and is seeking legal advice.
On Monday, David Gerald, founding president of the Securities Investors Association (Singapore) (SIAS), said that a “credible plan” is being worked out. The new plan was thrashed out in his offices that day with a number of people, including Hyflux founding executive chairman Olivia Lum.
Gerald explained that senior unsecured creditors as well as the 34,000 retail investors in preference shares and perpetual bonds of Hyflux “will be much better off than in a liquidation”.
Hyflux admitted in March to S$2.81 billion ($2 billion) of claims from 74 claimants including BNP Paribas, DBS, Mizuho Bank and PwC. In addition, 34,000 retail investors in the Lion City hold S$900 million of preference shares and perpetual bonds issued by Hyflux.
The new plan will have no haircut for the perpetual bonds and preference shares, which will be kept whole in the books.
The Singapore investing public “took a big hit” from Hyflux and it is a sensitive topic for the masses, said one Singapore businessman. A possible rescue of Hyflux by a Singapore government-linked entity cannot be ruled out, he added.
At the end of March, hundreds of retail investors protested in Singapore against the earlier restructuring plan, where retail investors would receive roughly 3% of their money.
The new plan will need at least three months to materialise, Gerald said. “SIAS calls on all parties, senior and junior creditors to give the company the time to work on the alternative plan to avoid liquidation which will result in a very adverse return to all the creditors and stakeholders.”
“All creditors are now rushing in to grab anything they can,” said the businessman.
Malaysia's Maybank intends to appoint receivers and managers for part of Hyflux’s core asset – the Tuaspring water treatment and power plant in Singapore – the company said on April 19. This is a debt enforcement event and the maturity of all of Tuaspring’s debts is accelerating, it said.
The desalination plant in Tuaspring is excluded from Maybank’s plan to take receivership of Tuaspring. On April 17, Singapore’s Public Utilities Board (PUB) announced that it will take over Tuaspring’s desalination plant in May to safeguard Singapore’s water security. The Singapore government regards water as a scare and strategic resource in the city state, which imports 40% of its water from Malaysia.
PUB and Maybank’s seizure of Tuaspring will have a material impact on Hyflux’s financial performance, the latter admitted.
The problems surrounding Hyflux’s debt including its bonds “puts a dampener on fixed income investments out of Singapore,” said one Singapore-based hedge fund manager.
