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Can Hyflux get it right this time?
HYFLUX finally addressed its cash woes on Tuesday when it filed for court protection against creditors' claims, a move that buys it time to keep running.
Over the next 30 days, the water project developer will have to come up with a convincing business plan to satisfy its key lenders - and the Singapore High Court - that it deserves a six-month moratorium to revive its business and reorganise its debts.
Whatever the outcome, Hyflux's shareholders, who have the least priority in a liquidation situation, as well as holders of its perpetual securities, who rank just one above them, may have to brace themselves for some pain.
Ang Chung Yuh, iFast senior fixed income analyst, told The Business Times: "While it is probably too early for us to speculate over the potential terms of the restructuring, I think that, for the exercise to have a chance of restoring long-term financial health for Hyflux, perp holders likely have to suffer at least some impairment of their investments."
Right now, the most important question for all concerned is what Hyflux boss Olivia Lum can promise to do differently to turn the company around.
Time is not on her side.
Hyflux has not generated positive cash flow from operations since 2009, a situation that has been rapidly deteriorating.
Hyflux's net debt stood at 32 times its Ebitda (earnings before interest, taxes, depreciation and amortisation) last year, up from 5.4 times in 2016, data compiled by Bloomberg shows.
Creditors are getting antsy. Hyflux itself said its lenders have required it to put up larger deposits before they will renew support for its existing projects.
To be sure, most of Hyflux's bank debts are long-dated and won't come due until years from now, which has led some analysts to speculate that the company may have breached certain financial covenants on these loans.
Hyflux did not immediately respond to a request for comment.
If the company is granted a six-month moratorium, it intends to finish constructing the S$750 million TuasOne waste-to-energy (WTE) plant, slated for completion next year.
But what watchers really want to know is how far Hyflux is willing to go to fix its business model, which relies more on borrowings to fund growth than on operating cash flows.
The company makes more money from engineering, procurement and construction (EPC) work than it does from operations and maintenance.
However, a large proportion of its S$1 billion EPC order book as at the end of last year was actually tied to lengthy concession periods under build-own-operate (BOO), design-build-own-operate (DBOO), and build-own-transfer (BOT) schemes.
For a DBOO project like TuasOne, EPC revenue does not correspond to actual cash flows, UBS analysts wrote last year: "Revenue is recognised as construction progresses, but cash flow is usually received over the life of the concession period... The construction phase is funded by project financing and Hyflux only receives cash flows upon completion, and over the duration of the operation concession periods."
The old model is less sustainable now that the company's debts have ballooned. Hyflux had tapped the bond market very heavily for refinancing in previous years, but that fund-raising avenue is shut now.
Notably, the company is starting to pull out of projects that require it to cough up its own capital.
On Wednesday, Hyflux announced that it had exited from a desalination project in Saudi Arabia awarded to it a year ago, after being informed of its customer's intention to convert the project into a BOT structure, which requires Hyflux to inject capital to fund the development. Hyflux received a US$3.5 million payment for the work it has done thus far.
Meanwhile, another BOT project, the US$500 million Ain Sokhna water and power project in Egypt, is still sitting in Hyflux's EPC order book. Contract finalisation has been pending since January 2017.
What could really solve a lot of problems for Hyflux right now is a huge asset sale. But no decent bids have come in on that front.
Hyflux has been trying to divest up to 70 per cent of the Tuaspring water desalination and power plant, held on its books at a value of S$1.3 billion, as well as the Tianjin Dagang desalination plant in China, which has a book value of S$150 million.
Ms Lum said in late February that she would not be cornered into a "fire sale".
Some hope that the recent uptick in wholesale electricity prices here could help Hyflux fetch a higher price for Tuaspring.
But the facility continues to be loss-making. Its 411MW power plant has never turned a profit since operations began in March 2016, so interest is not fantastic. Serious vultures will probably wait for Hyflux to get more desperate before they swoop in with an offer, observers said.
The clock is ticking for Hyflux, the market cap of which has fallen from around S$2 billion at its peak in 2010 to just S$165 million at the point it sought court protection.
Some shareholders have been luckier than others.
Temasek Holdings was at one time invested in Hyflux through a unit that held a 4.76 per cent stake obtained via a placement in 2003. This fell to 0.89 per cent in 2005.
One retiree, who bought into Hyflux at its initial public offering in 2001, told The Business Times that he had put about S$50,000 of his savings into the company. He has been following the news with distress, he said: "I should have disposed of my shares earlier... I don't know if I will get my money back."
Hyflux said on Wednesday that its group chief operating officer Wong Lup Wai will leave at the end of the month to pursue his personal interests.
It has also requested to suspend trading in its shares and perps pending the outcome of the court-supervised reorganisation process.