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Be prepared to 'get nothing' in liquidation, Hyflux warns perp, pref holders

Singapore

WATER treatment firm Hyflux faced its anxious creditors on Friday for the second time since it filed for bankruptcy protection, in a bid to rally support to carry through what has proven to be a tough rescue deal.

No definitive answers were given when investors asked repeatedly how much of their money they could expect to recover.

Only one new figure was shared by EY, the financial adviser.

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In a liquidation scenario, among retail investors, only senior unsecured creditors, namely note holders, will get paid. They can expect a recovery rate of 3.8 to 8.7 per cent. However, subordinated creditors such as perpetual and preference shareholders will get nothing in such a scenario.

Hyflux chief executive Olivia Lum opened two townhall sessions at Hyflux Innovation Centre on Friday by addressing why she was not using her own cash to recapitalise Hyflux despite repeated calls for her to do so.

She told perp and pref holders: "With SM Investments coming into the company, this is effectively a takeover and I no longer will own much shares, in fact almost no shares. So I will no longer be in the driving seat."

In October last year, a consortium comprising Salim Group and Medco Group tabled a deal to invest and lend S$560 million to Hyflux in exchange for a 60 per cent stake in the company once it has settled all its debts.

Ms Lum added to light applause: "I know many people do not like to see my face anymore. I'm ok. I'm prepared to step down, I just want to make sure I hand over the company properly to the new investor."

The consortium, SM Investments, has left a 40 per cent equity stake on the table for Hyflux's various stakeholders to share in a rescue plan. Ms Lum said: "I'm only worried for the papas and mamas, that in the case of liquidation, they will really get zero value...

"Without support for the rescue plan, the alternative for Hyflux will likely be liquidation."

Hyflux owes S$900 million in principal value to perp and pref holders. It was hinted that they might have to take a debt-for-equity conversion, though how fair the conversion rate would be was not discussed.

Hyflux's medium-term noteholders, who are owed a nominal value of S$265 million, were told that they might receive some cash and equity. Again, exact quantums were not discussed. It remains to be seen how much cash there is to go around after budgeting for working capital is factored in.

Asked if the company could extend the maturity of the notes and pay noteholders a lower coupon before redemption, Arief Sidarto, chief executive of SM Investments, replied "no". Hyflux's business is capital-intensive and he said he wants to make sure it is ready to move forward after the restructuring is completed.

Most noteholders seemed more easily comforted by what they heard and their question-and-answer session ended early.

But reactions from perp and pref holders were more mixed, and many questions were left unanswered when the session was cut off promptly at 9pm.

Hyflux intends to finalise the terms of the restructuring deal by mid-February, including exactly how much in cash or equity each creditor group will be allocated.

A third round of townhall meetings will be held on March 13. Also in February, Hyflux will go to court to ask for approval to call a scheme meeting, and all creditors will vote on the scheme of arrangement by the end of March.

NOTE: The total investment amount from the Salim-Medco consortium is S$530m (comprising a $400m equity injection and S$130m shareholders’ loan). The S$30m DIP loan, if disbursed, will be repaid from the funds injected by the investor upon completion of the restructuring.