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Hyflux inks S$400m rescue deal with utilities group Utico

Utico will subscribe for S$300m in new Hyflux shares, and grant it S$100m in working capital; PnP holders to pick between upfront and delayed payment

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After seven intense months of courtship, Hyflux and Emirati utilities group Utico have finally signed a rescue plan, three days before the insolvent water treatment firm is scheduled to give the Singapore High Court a progress update on Friday.

Singapore

AFTER seven intense months of courtship, Hyflux and Emirati utilities group Utico have finally signed a rescue plan, three days before the insolvent water treatment firm is scheduled to give the Singapore High Court a progress update on Friday.

The deal involves Utico subscribing for S$300 million new shares in Hyflux for a resultant 95 per cent stake. Utico will also grant Hyflux a working capital line of up to S$100 million.

Of the S$400 million rescue package, S$250 million will be used to settle around S$1.6 billion of debts. This includes unsecured bank debt, contingent debt as well as S$271 million owed to medium-term noteholders.

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Meanwhile, each of the 34,000 retail holders of Hyflux preference shares and perpetual securities (PnP), 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 PnP 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.

If Utico undertakes an initial public offering (IPO) within two years of the completion of the Hyflux restructuring, the pro rata additional payout will come from the cash equivalent of a 4 per cent stake in Utico at the listing price, or S$50 million, whichever is higher.

Utico chief executive Richard Menezes said by phone on Tuesday: "What we have offered is substantially more than the last offer that SMI made ... We are quite sure that we have been more than fair."

He was referring to the first rescue offer that Hyflux had taken up from the Indonesian Salim-Medco consortium (SMI). Before SMI pulled the plug on that deal, PnP holders were offered an implied recovery rate of 10.7 per cent on their invested capital, comprising a cash recovery of 3 per cent and 7.7 per cent implied equity value in Hyflux.

Essentially, if all PnP holders choose option 2, Utico would be using S$100 million to extinguish S$900 million of debt securities, assuming no IPO.

On the whole however, Utico's plan injects less cash into Hyflux than the failed SMI offer.

Utico intends to pay for only half the S$300 million equity injection in cash; the other half will be paid in promissory notes and/ or preference shares in a Utico affiliate.

When pressed for details on Utico's financial standing, capital structure and what the promissory notes will be guaranteed by, Mr Menezes replied: "I believe we are jumping the gun here.

"The RA (restructuring agreement) has been signed, the senior creditors have to do their due diligence, which will take up to 10 days, and post that, there will be a townhall."

He promised to release some information on Utico in the coming days, adding: "You will see, without Utico being good enough, this offer would not have been made."

Details on the role Hyflux chief executive Olivia Lum will play in the restructured firm are not yet clear.

She told the phone conference: "Today, we just signed the RA. We're going to have to really focus on completing this restructuring as soon as possible. And the rest of the things, over the next two months, we will discuss. Thank you."

Mr Menezes stressed that Hyflux will not be merged with Utico, even as Utico eyes a listing in Singapore: "We feel that two standalone companies will bring more value to shareholders."

Utico may subscribe for the new shares in Hyflux using a special-purpose vehicle that includes chairman Rashid Al Baloushi and chief executive Richard Menezes as shareholders, alongside other co-investors.

The idea is for Utico to eventually reduce its stake in Hyflux to 88 per cent in order for Hyflux to meet the minimum free-float requirement and resume trading in the first quarter of 2020, said Mr Menezes.

Utico will achieve this by placing out 7 per cent of Hyflux shares to institutional or private investors.

Mr Menezes said: "In the next two years, our order book is quite good... We already have a pipeline of (engineering, procurement and construction) projects where we feel that if Hyflux comes back by the first quarter or so, we think we can place them in a seamless manner."

Hyflux hopes to convene meetings with creditors to approve the schemes of arrangement in February, or early March. It will also ask for its debt moratorium to be extended at the court hearing on Friday.

iFast fixed income analyst Ang Chung Yuh said on Tuesday that if the schemes are approved, Hyflux will have a "good chance" of rebuilding its business, as it will be emerging from its insolvency debt-free.

"It's imperative for the company to reach a consensual solution as soon as possible, to have a higher chance of re-establishing its financial viability post-restructuring," he told The Business Times.

The long-stop date is six months from the date of the signed agreement, that is, May 25, 2020.

Conditions precedent for the rescue deal include regulatory approvals from the Singapore Exchange and the Securities Industry Council, as well as from the National Environment Agency in relation to the change of control in the TuasOne project.

It is also subject to Hyflux shareholders' approval of the issuance of new shares and the whitewash resolution.

Utico can also call off the deal if Hyflux and its team of professional advisers fail to come to an agreement about professional fees and who pays them.

WongPartnership lawyer Manoj Sandrasegara, who represents Hyflux, said: "The RA makes it clear that a certain pot of money is set aside for the professional fees, and we'll have that resolved in the discussions with all parties concerned."

A retiree who holds Hyflux's 6 per cent perps said on Tuesday that he has "serious doubts" as to whether the requisite approvals for the latest deal will be obtained.

"For PnP investors, the present deal is also no better than SMI's," he told BT.

Meanwhile, noteholders are awaiting clarity on the recovery rate they can expect, since this was not specifically discussed in Tuesday's announcement.

"No one is sure what the new deal means for us, and the amounts we will receive," a noteholder told BT. "We hope individual investors can get an equitable outcome."

Securities Investors Association of Singapore (Sias) president David Gerald said Sias would arrange for dialogue sessions for investors to understand the deal.

He said: "Something is better than nothing... We have always been against judicial management or liquidation, which brings no benefit to retail investors."