Friday 29 Mar 2024
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SINGAPORE (Feb 18): Cash-strapped Singapore water-treatment company Hyflux Ltd. unveiled a restructuring plan that’s been highly anticipated by retail investors in the city-state, who own millions worth of the firm’s debt.

Under the proposed plan, Hyflux would pay holders of perpetual capital securities and preferred shares S$27 million ($20 million) in cash and give them about 10.3 percent of the reorganized company, according to an affidavit dated Feb. 15.

Unsecured creditors will get S$232 million and 27 percent of the shares, while ordinary shareholders will receive 2.7 percent. The majority will go to SM Investments, a consortium of Indonesian companies. SM had earlier proposed injecting S$530 million into Hyflux in new equity, loan and working capital,
according to a plan unveiled in October.

“We appreciate that the outcome is very difficult given the size of the potential losses,” a spokesperson for the company’s financial adviser said in a briefing to reporters held by Hyflux and its legal advisers. “We do think this is the best option that we have,” he said, referring to the restructuring plan.

“It’s much better than one of the alternatives, which could be liquidation,” the spokesperson said. “Whilst the potential returns -- at least initially relative to the existing investment -- are low, given the circumstances, we don’t see any
other options that are better than this.”

Financial Distress

The firm, whose main asset is a desalination plant that’s among the biggest in Southeast Asia, has been trying to overcome months of financial distress after a stumble caused by an ill-timed expansion into the energy business. Hyflux said its Chief Executive Officer Olivia Lum and the board of directors intend to distribute their preference shares and perpetual capital securities to other holders when the proposed revamp is completed.

Post the restructuring, the company will be almost debt-free, the spokesperson said.

Hyflux has contingent claims and “the greatest source of uncertainty” for senior bondholders could be the claims that are eventually accepted, according to a DBS Group Holdings Ltd. note.

Debt Recovery

It’s difficult to determine the book value of Hyflux’s equity, but based on the cash offers to unsecured creditors and perpetual and preference shareholders, DBS estimates recovery is around 11.8 percent and 3 percent respectively.

Singapore produced a spate of debt defaults after the oil- market slump from 2014 crippled shipbuilders and oilfield service providers. At least S$1.4 billion of bonds have defaulted since 2015. Hyflux is being keenly watched because it
sold S$900 million of unsecured junior obligations, held mostly by mom-and-pop retail investors.

The reorganization follows other large-scale losses imposed on creditors in cases such as Ezra Holdings Ltd. and Ezion Holdings Ltd.

Singapore Bond Distress Shows Contagion Risk in Hidden Corners

Hyflux and its subsidiaries filed applications to seek an order from the Singapore court for approval to hold meetings with creditors to vote on its reorganization proposal. The Supreme Court Registry has scheduled the hearing for Feb. 21,
according to another filing early Saturday. It plans to hold those meetings on April 5. The Indonesian investors could walk away after April 16 without a plan on the table, they said.

The group filed for court protection in May 2018 and put up its key asset for sale, the Tuaspring water desalination plant.

It received only one “unreasonably low” offer, and then courted SM Investments -- a closely held venture of Indonesian tycoons Anthony Salim and Arifin Panigoro -- for capital infusion.

The Salim group has diversified interests in the region including power-generation in Singapore and energy and water distribution in the Philippines. The Medco group owns stakes in oil and gas exploration, copper and gold mining and power
generation businesses in Indonesia.
 

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