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Group of bank creditors to file for Hyflux judicial management
A GROUP of bank lenders is preparing an application to place Hyflux under judicial management (JM), which they will file with the Singapore High Court by August 7.
On Monday, Justice Aedit Abdullah gave the go-ahead for an unsecured working group (UWG) of banks comprising Mizuho, Bangkok Bank, BNP Paribas, CTBC Bank, KfW, Korea Development Bank and Standard Chartered Bank to be carved out of Hyflux's debt moratorium, after the UWG argued that it can no longer trust Hyflux's management to lead any restructuring effort.
"The debtor-led restructuring has taken important turns where there has been no creditor consultation," said the UWG's lawyer Eddee Ng of Tan Kok Quan Partnership in the chambers hearing held over Zoom.
"The company has gone its own course and presented a fait accompli. This is not something a JM will do," he said, since a JM is accountable to the court and free from any agenda that the board of Hyflux may have.
Mr Ng noted that Hyflux and its current and former directors are the subject of criminal investigations by the Singapore authorities, for suspected false and misleading statements and breaches of disclosure rules that may have taken place over a period of years.
"We do not know where these investigations will lead to but these investigations will clearly skew the agenda of the company... because there is every interest on the part of the board to protect itself to make sure that claims don't commence against the board members," he argued.
Hyflux has made this pre-condition clear in creditor meetings, despite strong resistance from the UWG. Mr Ng said: "The board will certainly gravitate to options that give them that release, as opposed to what is valuable for creditors."
Mr Ng also noted that some potential investors have told him that their interest in Hyflux will not diminish if Hyflux is placed under JM.
"The only serious offer on the table is an offer from Utico, where (chief executive Richard) Menezes has said he is agnostic to working with a JM," Mr Ng said.
While other investors, fronted by Unilegend Investments, Pison Investments and Aqua Munda have said that they will walk back their proposals if the board of Hyflux and founder Olivia Lum are removed, or if Hyflux is placed under JM, all these statements must be taken with a pinch of salt as their engagements with creditors are still in very nascent stages, Mr Ng said.
He also noted that the invitation memorandums sent out by Pison and Aqua Munda to Hyflux's senior unsecured creditors to buy their debt at a discount are practically identical in appearance: "We have serious doubts about the bona fide (nature) of these parties... They (the Pison and Aqua Munda offers) are almost a copycat of each other."
Other questions about who is funding Aqua Munda remain unanswered, Mr Ng added: "In January, Hogan Lovells, my instructing solicitors, wrote to (Hyflux chief executive) Olivia Lum to ask if there was any involvement with Aqua Munda. Ms Lum brushed these queries aside by saying they are irrelevant... In July, (Hyflux) said that there is no agreement between Aqua Munda and Olivia Lum. So I would say that the original queries were never ever answered."
Representing Hyflux at the two-hour hearing was Nish Shetty, partner at Clifford Chance Asia.
"A JM will indicate that consensual restructuring is pretty much at an end," Mr Shetty warned, which effectively means liquidation for Hyflux.
Hyflux deserves another opportunity to ink a rescue deal, he said, and a key development since the last two deals lapsed is that one of the potential investors, Pison, has stumped up S$200 million to purchase Hyflux's debt and provide it with working capital. Bank Mandiri has confirmed that the funds exist.
Pison has also been approached by FCC Aqualia, a water management firm that earlier expressed its interest in investing in Hyflux, for a possible partnership. FCC Aqualia is owned by Spain-listed FCC.
Mr Shetty said: "FCC Aqualia is the fourth largest water company in Europe, not just some fly-by-night company that is linked to Hyflux... We have just been told by Pison's lawyers that FCC Aqualia has sent a letter to Pison that they are willing to show the court... that this isn't just puff."
However, the chance of a successful Pison deal is impossible to project now, Mr Ng argued, since Pison has said that it will only engage with junior creditors - the holders of Hyflux's perpetuals and preference shares (PnP) - if it is able to purchase what it considers to be a "sufficient" amount of debt from senior creditors. The long-stop date on the offer to senior creditors is Dec 31, 2020.
"Until they determine there is sufficient interest from eligible creditors, the deal does not go forward. So it's completely contingent in nature.... Even if there is sufficient interest, we don't know what it is that will eventually be offered to PnP holders," Mr Ng stressed.
So, while Hyflux has received all kinds of expressions of interest, including, over the weekend, a letter from The Spectrum Solutions Group on behalf of its client, an unnamed North America-based fund manager, there is really no proposal capable of acceptance now, Mr Ng said.
The chance of a successful Utico deal is nil, he said, since the UWG and an informal steering committee of Hyflux medium-term note holders who together represent 73 per cent of Hyflux's senior unsecured debt have said that they will vote against the Utico deal.
Even Hyflux has been "non-committal" with respect to Utico, refusing to express a view on the deal during a June teleconference, Mr Ng said.
Aqua Munda, meanwhile, has "made a song and dance about engaging with Sias", or the Securities Investors Association (Singapore), Mr Ng observed. But since Aqua Munda met Sias last month, there has been "radio silence" as to what it will offer PnP holders.
Mr Ng asked: "Are these genuine proposals or merely games to extend the restructuring for as long as possible?"
More than two years have passed since Hyflux filed for bankruptcy protection in May 2018. On Monday, the insolvent water treatment firm sought to have its debt moratorium extended by another four months until November, but this was rejected by Justice Aedit Abdullah.
Instead, he extended the debt moratorium until the date of the JM application hearing, which could take place as early as next month.
Sias said in a statement on Monday evening: "This does not necessarily mean that JM is inevitable as this will only be decided by the Court at the relevant hearing date for JM.
"There is still time for serious offerors to table concrete offers. In particular, Sias repeats its call for Aqua Munda and Pison Investments, who have stated that they would make an offer to the PnP holders, to do so on an urgent basis."