Back to square one for Hyflux as it seeks new white knight

Troubled water treatment company Hyflux faces a higher chance of being liquidated barring the appearance of a new white knight investor - and experts say that the chances of one appearing are low.

What was supposed to be a lifeline for Hyflux to restructure its debts ended abruptly yesterday, a day before creditors were slated to vote on the proposed reorganising deal.

The company called off a rescue deal by Indonesian consortium SM Investments (SMI), which had earlier agreed to pump in $530 million in return for a majority stake. Hyflux also cancelled another scheme meeting next Monday and an extraordinary general meeting scheduled for April 15.

Associate Professor Lawrence Loh of the National University of Singapore summed up the latest turn of events: "It is now back to square one for Hyflux."

The debt-laden company is not giving up, however, saying in an exchange filing yesterday that it will "relentlessly pursue" other avenues to find a way out.

This would entail getting creditors on board with its restructuring proposal, which the court has given Hyflux until April 30 to carry out.

But it may not be an easy task, with Singapore Management University law don Eugene Tan noting that Hyflux's decision to walk away means that the company "now faces the real likelihood of liquidation unless it receives an unlikely reprieve".

Indeed, Hyflux sounded a warning yesterday that "there can be no assurance that the company will be successful in securing a new investor or in finding a viable alternative to execute the restructuring".

Yet, the company believes that PUB's takeover of its Tuaspring desalination plant "could potentially enable the company to reach out to a wider pool of investors which may not otherwise have been interested" if the plant remained under its charge.

PUB had said it would exercise its rights to take over the desalination facility if defaults are not fixed by today. It later granted an extension to April 30 but with the termination of the restructuring deal, the deadline has reverted to the original.

Tuaspring also comprises a power generation plant. The integrated model was meant to enable profits from the power plant to subsidise operating costs of the desalination plant. However, the weak electricity market, coupled with operating losses from the desalination plant, sank Hyflux into debt.

The water treatment specialist's total liabilities stood at $2.95 billion as of March 31 last year. 

The company thus announced a court-supervised reorganisation of its business last May.

Prof Loh, who is also the director of the Centre for Governance, Institutions and Organisations, said: "Minus the water part, the energy sector, particularly energy generation, is not going to be attractive to potential investors, given the current market situation of overcapacity and depressed prices."

If things do not pan out, Hyflux faces the ignominy of liquidation. This means that a number of creditors and investors, including 50,000 retail investors and 3,000 Central Provident Fund members who had used their money to buy Hyflux ordinary and preference shares, stand to lose all their money.

Nanyang Business School's Associate Professor Kevin Koh said that money from the liquidation will first be used to pay the costs and expenses of the liquidation process.

"It seems that other than Hyflux employees and the senior unsecured creditors, such as the banks, other parties are unlikely to recover any money from Hyflux liquidation," he added.

Prof Loh said: "There is a cost incurred holding on to the operation, and it may not be in the interests of the claimants... for the company to continue to burn cash indefinitely. Hyflux may then need to activate the ultimate option, which is liquidation."

At least one stakeholder is calling for calm, and is asking "senior creditors to give the company a chance... and not put the company under liquidation hastily".

Securities Investors Association (Singapore) president David Gerald yesterday called for stakeholders to give Hyflux "time and space".

"I had called Olivia Lum to determine whether there is an alternative solution that can be presented to investors and creditors," he said, referring to the Hyflux chief executive and founder.

"According to her, the board will quickly re-engage with previous interested parties who had shown keen interest and were bidding for Hyflux with SMI."

Mr Gerald said that he has "conveyed to her (investors') dissatisfaction with the last offer for them and had requested to bear that in mind when discussing a new deal".

Source: The Straits Times, 5 April 2019

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