Hiap Seng inks rescue term sheet for S$16m cash injection, but creditors must approve debt-for-equity swop

MAINBOARD-listed Hiap Seng Engineering 510 : 510 0%, which has been under judicial management since late last year, may have found a white knight, the judicial managers said in a bourse filing on Thursday (Dec 9).

The company could get a cash injection of S$16 million from investors led by an associate of mainboard-listed logistics player Vibrant Group, as part of a debt restructuring under the non-binding term sheet inked earlier on Thursday. The deal with the investors is dependent on unsecured creditors approving a debt-for-equity swop in a scheme of arrangement.

Vibrant Equities, owned by Vibrant Group and 2 brothers of Vibrant's controlling shareholder and chief executive, plans to put up S$6 million to subscribe for new shares in Hiap Seng, while Tian Yuan, the chief executive of construction company CGC Group, would contribute S$2 million.

The investors would also get options to subscribe for new shares, which can be exercised at the subscription price in the first 12 months or a 10 per cent premium in the next 12 months.

Vibrant Equities could hold as much as 48 per cent of the enlarged share capital of Hiap Seng if the options are fully exercised in the first 12 months; Tian could own up to 16 per cent.

One condition for their rescue investment is a scheme of arrangement under which Hiap Seng will propose to settle some of its unsecured financial liabilities by issuing new ordinary shares and paying cash to those creditors.

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Net proceeds from the planned subscription will be used to settle outstanding liabilities with Hiap Seng's key principal banker, which has security over assets such as properties, project receivables and cash; net proceeds from the options will be used for working capital.

The bailout, which has a long-stop date of Jul 31, 2022, needs a whitewash waiver from the Securities Industry Council of Singapore, approval from the Singapore Exchange for Hiap Seng to resume trading, and the green light from shareholders at an extraordinary general meeting.

The term sheet carries a month-long exclusivity period, during which Hiap Seng cannot make agreements with any third party for an investment into the company.

Hiap Seng said in a bourse filing that the deal "will allow for certainty of funding resulting in the company being able to reduce its outstanding debt obligations, which is vital for the continuity of the company as it will allow the group to continue as a going concern".

The company also said in a statement that it will look into tapping investors' resources "in extending freight and logistics services to its clientele, especially in the oil and gas segment".

Separately, Hiap Seng also plans to raise up to S$3 million in a rights issue for working capital needs after the restructuring is completed. Executive director Richard Tan and/or his family will undertake to subscribe for S$1 million of shares; other shareholders can also take part in the exercise, but Vibrant Equities and Tian will be barred from doing so.

But the judicial managers warned that the deal still needs the negotiation and execution of definitive agreements, and there is no guarantee that the planned restructuring will go through.

Vibrant shares closed flat on Thursday at 9.2 Singapore cents, before the announcement. Trading in Hiap Seng shares has been suspended since November 2019.