Hyflux bank lenders said to oppose adviser fees for Utico deal

Singapore

SOME of Hyflux's unsecured bank lenders are reportedly objecting to the new restructuring agreement (RA) inked by the troubled water treatment firm and white knight Utico.

The main point of contention is said to be a success fee of up to S$25 million payable to Hyflux adviser nTan Corporate Advisory, helmed by principal Nicky Tan, if the restructuring is successful, Debtwire reported, citing four sources.

All legal and financial advisory fees are to be capped at a total of S$40 million for the deal, under the RA.

This S$40 million pot includes all of nTan's fees and over S$15 million in payments already made to other advisers to Hyflux and each creditor group, which makes it "highly unlikely" for there to be any amount left to cover remaining fees for creditors' advisers, the Debtwire sources said.

They did not disclose which members of the unsecured working group (UWG) of bank lenders had raised these concerns.

However, other people familiar with the matter pointed out to The Business Times that the fees payable to nTan, including the success fee, are still subject to negotiation.

The RA states that the advisers are to convene bilateral discussions to determine how the S$40 million will be split among them as payment for outstanding fees.

A source familiar told BT on Thursday: "The RA is only a few days old so of course these discussions have not taken place. It is premature to flag the advisory fees as a reason to oppose the deal."

Besides, the UWG's recovery rate from the Utico rescue plan will not be affected by the S$40 million pot. "The funds set aside to repay the creditors are a separate pool from those for adviser fees, so it's mystifying as to why any banker will be upset about how the S$40 million is allocated," the source told BT.

Utico is offering a S$400 million rescue package to the water treatment firm. Of this, S$250 million will be used to settle about S$1.6 billion of debt, including unsecured bank debt, contingent debt and S$271 million owed to medium-term noteholders.

There will be a court hearing scheduled for Hyflux to seek leave to convene creditor meetings for approving the schemes of arrangement. According to the RA, Utico may terminate the deal if Hyflux does not agree with all advisers on the fee amounts and payment schedule by that court hearing.

Before nTan was appointed in April this year, Hyflux did not consult with its creditors on the terms of the advisory firm's engagement, Debtwire wrote.

On Thursday, WongPartnership lawyer Manoj Sandrasegara, who represents Hyflux, told BT that Hyflux had made available nTan's engagement terms - just after the advisory firm's appointment - to all creditors who were granted access to the data room for the deal.

The lenders' opposition to nTan's fees was reported two days after the Securities Investors Association of Singapore president David Gerald had lauded nTan's Mr Tan and Hyflux's board for their "relentless efforts" in striking the deal with Utico.

Utico said last month that the adviser fees had been a "contentious" issue, but that it was resolved with the introduction of the S$40 million cap.

In August, an affidavit filed in court by Hyflux CEO Olivia Lum stated that Borrelli Walsh, adviser for the UWG, had offered Utico a half-price deal in May to sell Hyflux's business and assets for less than S$200 million through a judicial manager. Borrelli Walsh had denied the existence of a side offer then, when contacted by BT.

Some subordinated creditors have also expressed resistance to the deal. One retail investor, who holds Hyflux ordinary shares, preference shares and perpetual securities totalling a five-figure amount, told BT that she finds it unfair for those with large holdings, as they will get a lower recovery rate.

Each of the 34,000 retail holders of Hyflux pref shares and perps, who are owed a total of S$900 million in principal value, can choose from two options under the schemes.

The first option is to receive an upfront cash payment of S$1,500 or 50 per cent of their holdings, whichever is the lower.

The second is a deferred payment option, where the pref share and perps holders can opt to receive the same amount over a period of two years, with an added 1.25 per cent interest per annum.

Those who choose the second option will also receive an additional payout from a S$50 million pool of cash, which will be distributed on a pro rata basis.

"It seems the offer is meant to collect more votes from small investors (who put in S$2,000-S$3,000 each) to push the schemes through," she said. "Retail investors are wiped out, with the majority of funds going to banks, accredited investors and advisers," the retail investor said.

Utico and Hyflux did not respond to BT's queries by press time.

Hyflux is set to give the Singapore High Court a progress update on Friday, when the court will also determine whether to extend the firm's debt moratorium beyond its Dec 2 expiry.