Hyflux rescue deal hits a snag as Utico revokes cash offer

THE rescue deal for Hyflux has hit another snag, with potential investor Utico now demanding that all of Hyflux's creditors accept shares of Utico and Hyflux as payment, instead of cash.

In a letter to Hyflux and its stakeholders on Tuesday, Richard Menezes, chief executive of Emirati utilities group Utico, said that he wants the terms of the rescue deal changed, citing a lack of support from creditor groups, despite an agreement being signed on Nov 26 last year.

Mr Menezes wrote: "We had signed the restructuring agreement hoping to consummate it in 2019, first on Aug 26 and finally on Nov 26. Unfortunately we could not get the Hyflux board to support initially, and finally UWG (an unsecured working group of banks) and advisers did not support the deal. We also did not have explicit support from P&P (perpetual and preference shareholders') advocate Sias (Securities Investors Association Singapore) till date, even though we found the townhall of Jan 20 well attended."

Utico had also received the audited financial statements it had requested from Hyflux only on Tuesday, when these were due on Jan 27, Mr Menezes said in the letter that was published to the Singapore Exchange on Wednesday.

For these reasons, all cash considerations that Utico had earlier offered in its proposed S$400 million rescue package will now be substituted for stock in Utico and Hyflux, Mr Menezes said.

He now wants senior unsecured creditors to accept 17 per cent of Utico and 12.5 per cent of Hyflux as payment, and P&P holders to receive 5 per cent of Utico and 12.5 per cent of Hyflux as payment.

Once the scheme is passed, Utico at its sole discretion will engage with each party to buy back the shares on an exclusive basis, Mr Menezes said.

The earlier agreement was for Utico to set aside S$250 million in cash to settle around S$1.6 billion of bank debt, contingent debt and S$271 million medium-term notes over two years. It would also use up to S$100 million to pay off the S$900 million owed to Hyflux P&P holders.

Mr Menezes added that his new proposal will be contingent on "immediate approval and action by Hyflux to transfer all project agreements and shareholding of Hyflux project companies in Algeria, Oman, which are to be transferred to Utico on board approval with no delay".

He said: "This will enable Utico to remedy, rectify and build the value of these assets, arrest the running penalties and stem the value leakage . . . Since time is of the essence, we can only keep this offer valid till June 4."

Livelihoods are at stake in these "unprecedented times", Mr Menezes noted, adding: "Fortunately for us (Utico), our demand has been increasing . . . I am confident that we will continue to be positioned on a firm footing in our markets as the lowest priced, reliable, quality producer and supplier."

He said in closing: "We hope good reason and sound wisdom will prevail in the interest of so many stakeholders including all those employees and investors who will be better off by saving this company."

Notably, Utico has never divulged details on its financial standing and capital structure, despite being pressed repeatedly.

Hyflux said it is considering the contents of the letter. A person close to the matter told The Business Times: "Everyone is taking advantage of Covid-19 to posture and renegotiate."

With the success of a Utico deal more uncertain now, senior unsecured creditors may reconsider a separate exit offer that was previously placed on the table.

In December last year, a special purpose vehicle known as Aqua Munda emerged, offering to pay cash for the debt of Hyflux's bank lenders, noteholders and senior unsecured creditors at a minimum discount of 85 per cent in a reverse Dutch auction. That offer still stands.

Aqua Munda did not make any offer to P&P holders, but if it buys out all of the senior debt, then Hyflux can come out of the court-sanctioned restructuring process.

Aqua Munda is widely speculated to be a stalking horse for someone, a perception that may have been encouraged by the fact that Hyflux has repeatedly ignored questions about whether the board of directors of Hyflux and its advisers have an interest in Aqua Munda.

Asked by BT if it believes Hyflux's approach to disclosure is acceptable, a Singapore Exchange spokesperson replied: "As the matter of its restructuring is before the court, Hyflux will have to take into account the directions of the court, the documents filed in court and the stage of proceedings when it makes its disclosures."

Hyflux is currently under court protection from any enforcement actions by creditors. In April, the Singapore High Court extended its debt moratorium to July 30.

Hyflux's creditor scheme meetings, originally scheduled for April 22 and 23, have been postponed till further notice in light of Covid-19.