Hyflux plot takes another twist with new debt offer

Singapore

THE unexpected entry of a new player has added yet another twist to the Hyflux plot, and may unsettle the rescue package currently on the table for the beleaguered water treatment and utilities company.

This comes just as the Hyflux saga appears to be finding a resolution with the signing of the S$400 million rescue deal between the company and Middle Eastern utilities group Utico last month.

On Monday evening, a new potential investor, Singapore-registered firm Aqua Munda, which The Business Times (BT) understands is a newly-formed special-purpose vehicle, dangled a proposal to buy out Hyflux's 4.25 per cent notes due in 2018, and 4.6 per cent notes and 4.2 per cent notes due in 2019, as well as other senior unsecured, trade and contingent debt of Hyflux and three of its subsidiaries.

The total principal amount of the eligible debt adds up to about S$1.8 billion, which is almost two-thirds of the total S$2.8 billion in debt shouldered by Hyflux. The remaining creditors comprise mostly Hyflux's perpetual securities and preference (PNP) shareholders.

BT understands that Singaporean businessman Bambang Sugeng Kajairi, who owns Aqua Munda, is a representative of an investor group from the Middle East. The identity of the group has not been disclosed so far.

The development opens several possibilities, beyond the debt changing hands. If the exercise is successful, that is, if many creditors agree to sell their debt to the new investor, any of the following could happen:

What Aqua Munda has to offer to creditors is repayment within a shorter period. Under Utico's scheme of arrangement, senior unsecured claimants will get paid in two tranches in a combination of cash and preference shares over 18 months or more (the payment period for PNP holders could even be longer at up to two years).

Aqua Munda is likely counting on creditors being attracted to the option of a quick exit from the long-drawn saga which first started in May 2018. The catch is that these creditors must also then be willing to stomach a steeper discount in order to get paid sooner.

Some market watchers see value in its proposition. David Chew, partner and founder of investment banking and financial advisory firm DHC Capital, noted that the new investor is simply providing liquidity to creditors who wish to exit, and that such "secondary activities" are not altogether uncommon in rescue deals.

"There are a number of reasons why creditors may be attracted to this offer. Firstly, certain creditors may have liquidity needs and want to monetise the debt quickly for cash, even at a haircut.

"Secondly, certain creditors may have a less bullish view on the prospects of the company, industry or value-add the new investor Utico can bring in and see limited or no value in the equity and wish to exit quickly, and this deal provides certainty in value via a cash payment.

"Thirdly, certain creditors may not be able to accept the equity that is being offered due to regulatory issues or lack of a Central Depository Account or trading account and wish to exit quickly and this deal provides cash payment."

BT understands that Aqua Munda intends to adopt a "reverse Dutch auction" approach where creditors will tender for a pool of cash available from the new investor, and the creditors offering the highest discounts will be accepted first and so on, until the pool of capital is fully utilised.

Aqua Munda has said that it will release a memorandum containing more details of its proposal by Dec 27 and eligible creditors will have from Dec 30, 2019 to Jan 10, 2020 to tender their debt. This means that by the time the scheme meeting rolls around in March 2020, the landscape for Hyflux and its creditors would already have been greatly altered. The plot line is not so linear anymore.

When contacted, Hyflux deferred all queries to its adviser nTan Corporate Advisory, while Tan Kok Quan Partnership lawyer Eddee Ng who represents the unsecured working group declined comment.

Principal Nicky Tan, who helms nTan, said: "The creditors of the company now have options."

Utico did not respond by press time.