Half-price side offer to Hyflux's unsecured lenders: Lum

Singapore

AN affidavit filed in the Singapore Court last Friday showed that Borrelli Walsh, adviser for water treatment firm Hyflux's unsecured working group of lenders, had offered Utico a half-price deal in May to sell the business and assets for less than S$200 million by putting them through a sale by a judicial manager.

This was as opposed to the S$400 million currently on the table. Borrelli Walsh's proposal would in essence have left practically nothing for the perpetual capital securities and preference share (P&P) holders, made up mostly of some 34,000 retail investors.

While this alleged new piece of information is not expected to affect the pending deal with Utico, Borrelli Walsh, when contacted by The Business Times, denied the existence of a side offer.

In a phone call, Cosimo Borrelli, managing director of the restructuring, insolvency and forensic accounting firm, said: "We are not in a position to make any comment. We would be responding to the matter in Court when the time comes, and we will be denying that allegation."

It was revealed in the 11th affidavit of Hyflux chief executive Olivia Lum on Aug 2 that in May this year, there had been another investment proposal put forth to Utico by Borrelli Walsh for the Middle Eastern utility company to take over Hyflux and its subsidiaries' business and assets through a sale by a judicial manager at about S$200 million.

She said: "Under that offer, it is clear that the holders of perpetual capital securities and preference shares would have received nothing, and accounting for the costs of a judicial management, which have been outlined in the first affidavit of Nicky Tan, the unsecured bank lenders together with the noteholders would have had approximately S$150 million as recovery, and even this would be achieved after what may have been a protracted sale process as compared to receiving payment within 18 months under Utico's current investment proposal."

Ms Lum added that Utico's current investment proposal offers recovery above a liquidation scenario. The latest estimated realisable value of the applicants' assets is between S$63 million and S$133 million, before liquidation expenses.

She said that notwithstanding the lower offer made by Borrelli Walsh, Utico had chosen to work towards a recovery of the Hyflux Group that would allow value to be achieved for P&P holders.

Utico had also echoed Hyflux's position that the "Hyflux Group has greater value as a group that remains a going concern than as parts".

This was reflected in a recent email which Utico's managing director Richard Menezes sent to Mr Borrelli on July 10 this year, urging him to consider Utico's investment proposal and explain its attractiveness to his clients - seven unsecured bank lenders, namely Mizuho Bank, KfW IPEX Bank, Bangkok Bank, BNP Paribas, CTBC, Korea Development Bank, and Korea Development Bank Singapore Branch. These banks previously filed a carve-out application to have the company placed into judicial management. They were unsuccessful.

Hyflux has until Aug 26 to ink a definitive deal with Utico, which has agreed to take an 88 per cent stake in Hyflux through a S$300 million equity injection and a S$100 million shareholder loan. If this deal fails, Utico could either tweak its terms or walk away.

The deal is barring objections from unsecured bank lenders. Eddee Ng, senior partner at Tan Kok Quan Partnership and legal representative to the unsecured working group of lenders, said he cannot disclose whether his clients will support the deal or not. This will be voted on after a definitive agreement has been drawn up.

Under the deal, bondholders and unsecured bank lenders are slated to receive an all-cash deal of S$250 million in two instalments, while holders of Hyflux's perpetual securities and preference shares were tentatively offered cash and shares linked to Utico's enlarged share capital after it lists on the Singapore Exchange.

On Wednesday, David Gerald, founder, president and CEO of the Securities Investors Association (Singapore) said it will not support any suggestion that the P&P holders be excluded from the deal, and "strongly discourages" any move to place Hyflux under judicial management to sell Hyflux to Utico or any other investor at a substantially lower deal value.

Noting that this alleged side offer effectively ensures that the P&P holders get nothing from the sale while the senior unsecured creditors get far less than what Utico is prepared to offer, Mr Gerald called the offer "unacceptable" and suggested that Borrelli Walsh should cease from exploring side deals with potential investors which severely affect the interests of creditors.

When contacted, Brendon Yeo, director of nTan Corporate Advisory, said: "Hyflux and all its advisers hope that all the relevant stakeholders will work with Utico to reach a definite agreement on the restructuring as soon as possible."