Friday 29 Mar 2024
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KUALA LUMPUR (May 25): The potential losses to Malayan Banking Bhd (Maybank) from the debt restructuring of Singapore-listed water treatment firm Hyflux Ltd should be limited, says Moody's Investors Service.

Maybank provided an 18-year S$720 million financing facility to Hyflux's Tuaspring project in 2013, and Moody's believes that Maybank's exposure has decreased since 2013 because of loan amortisation.

In a statement today, Moody's said it assumes that most or all of Maybank's exposure is secured by the Tuaspring project or related cash-flow receivables or both.

"This situation should mitigate losses for Maybank in a worst-case scenario, in which Hyflux goes into bankruptcy," the rating agency added.

Maybank shares took a beating yesterday, possibly on concerns over its exposure to Hyflux, which had on May 22 applied for court protection to facilitate the restructuring of some of its S$1.5 billion in outstanding debt. The company had also announced that it planned to skip the upcoming coupon on its S$500 million perpetual capital securities.

Maybank's stock fell as much as 7.6% to its intraday low of RM9.87 in early trade yesterday, before closing 3.9% or 42 sen lower at RM10.26.

At 3.49pm today, Maybank shares were 4 sen or 0.39% lower at RM10.22, with 13.03 million shares done, bringing a market capitalisation of RM111.68 billion.

According to Hyflux's annual report, its creditors include around 30 financial institutions, mostly Singapore branches and subsidiaries of foreign banks.

The rating agency said these institutions, as well as other investors, could suffer losses on their Hyflux exposures.

Moody's vice president and senior credit officer Eugene Tarzimanov also highlighted that Hyflux has a large amount of secured debt, which heightens the risk to its unsecured creditors.

The rating agency pointed out that 68% of Hyflux's debt is unsecured, with 51% in unsecured bank loans.

However, Moody's does not see the debt restructuring of Hyflux leading to a general deterioration in the asset quality of bank loans to other large power generation companies in the city-state.

Moody's said for Hyflux creditors, the restructuring could involve a combination of haircuts, the extension of debt maturities or adjustments to interest rates, leading to possible financial losses.

"Nevertheless, most large power generation companies in Singapore have strong shareholders with diversified portfolios of generation assets," said Tarzimanov.

"In addition, these companies' power assets were mostly commissioned some years ago, implying that the debt load on these projects would be more manageable when compared with Hyflux's Tuaspring, which was commissioned in 2015," he added.

 

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