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HYFLUX SAGA

Hyflux gets only a month more on debt stay in absence of binding offer

Company signs LOI with Middle-East party and is also in talks with sovereign funds

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Singapore

HYFLUX will have its debt moratorium extended by one more month to May 24, with High Court Justice Aedit Abdullah stressing that he wants the company kept on a "short leash". Hyflux has been in restructuring limbo for almost a year now.

The water treatment firm had asked the Court on Thursday to let it prolong its search for a rescue investor by three more months.

Though it has no firm offers in hand, Hyflux said it had signed a non-binding letter of intent (LOI) with one interested party on Wednesday night.

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Hyflux declined to name the mystery investor, describing it only as a developer and owner of water and power utilities in the Middle East: "Discussions with this party are based on a possible injection of S$400 million to be used for equity and working capital purposes and possible urgent interim funding."

Hyflux is also in early discussions with more parties, chief executive Olivia Lum said in an affidavit filed on Tuesday.

These include a sovereign fund based in the Persian Gulf, a sovereign fund based in North Africa, and an Australian investment fund. Hyflux has also inked a non-disclosure agreement with a foreign fund with previous investments in South American companies that has recently invested in Asia. This fund invests in distressed companies.

Ms Lum wrote: "The interest expressed by parties has focused on the EPC (engineering, procurement and construction) business and the potential pipeline that can be developed by leveraging off the existing track record.

"By excluding currently loss-making projects such as the Tuaspring plant, potential strategic investors need not factor into their investment proposal the need to keep funding such assets."

Justice Aedit observed that Hyflux had come to court on Thursday without an investor, despite his instruction that it would have to show a "concrete" plan.

A debt moratorium under Section 211B of the Companies Act is "not meant to continue indefinitely but to give the company breathing space", he said: "Is it so bad to move into liquidation?"

WongPartnership lawyer Manoj Sandrasegara, who represents Hyflux, told the court: "Liquidation is armageddon because everything just grinds to a halt."

The judge ventured: "Sometimes you just kill in order to be merciful."

Mr Sandrasegara agreed that this may be so for "really bad" cases, but Hyflux is not at that stage, and still has a track record in the global water business.

Mr Aedit replied: "So does Kodak, and Toys'R'Us... If it goes on and on... I do not think that the 211B mechanism is intended to last for that long."

One creditor, DBS Bank, supported Hyflux's request for the stay on creditors' claims to be extended. But others were impatient.

Mizuho, KfW, Bangkok Bank, BNP Paribas, CTBC Bank and the Korea Development Bank have applied to be carved out of the moratorium. The Court will decide on May 7 whether they can be carved out.

If a carve-out is approved, these banks plan to file an application to appoint judicial managers (JMs) over Hyflux and Hydrochem to replace the present Hyflux management.

Tan Kok Quan Partnership lawyer Eddee Ng argued on behalf of these banks: "This entire process in the last 10 months has been marked by a lack of transparency on the part of the company... There is good cause to replace the management of the company with JMs simply because we have lost confidence in the management and board of Hyflux in continuing to run this process."

Mr Ng also raised doubts about the LOI "that my learned friend (Mr Sandrasegara) cares to show to no one". He said: "We do not know what has been agreed to by this person who has issued this non-binding LOI. So these plans mean nothing more than hypothetical scenarios, and we should call them as such."

Mr Sandrasegara countered: "I think the JM application is just disguised to be a liquidation application, as most JM cases end up as."

A JM would also face difficulties taking control of assets in foreign jurisdictions, unless assistance and support are rendered by management, he explained.

Mr Sandrasegara added that many of Hyflux's plant assets are public-private partnerships (PPP) which rely on government offtake agreements for cashflow, without which they would have very little value.

For these projects, judicial management and liquidation are major trigger events that would allow the governments to cancel water contracts or seize the plant, as Singapore water agency PUB has done with Tuaspring.

"I think we are in very dangerous territory," he said.

But Mr Ng was unconvinced. He asked Mr Sandrasegara to confirm that the default clauses for Hyflux's various plants had not already been triggered after Hyflux filed for bankruptcy last year: "I do not believe that these clauses are drawn ipso facto around judicial management alone."

The two-hour session concluded with Justice Aedit extending Hyflux's lifeline by one month: "For the moment I will give you till May 24. Arguments for further extensions can be made either on May 7 or 13", during which Judge Aedit expects an update.

SM Investments, the Indonesian investor group that last year shook hands on a rescue deal with Hyflux and walked out, was not present in Court on Thursday.

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