Distressed Hyflux says Salim-Medco rescue is off; but investor 'surprised' by news

CASH-strapped Hyflux said on Thursday that a key rescue deal from the Salim-Medco investment group is officially off with just weeks to go before the water and power plant company loses court protection from creditors.

Hyflux has cancelled scheme meetings scheduled for April 5 and 8. There is also no need for shareholders to attend an extraordinary general meeting scheduled for April 15, the company said.

SM Investments (SMI), the vehicle for the Indonesian group led by billionaire Anthoni Salim, responded on Thursday saying that it was "surprised" by Hyflux's "purported termination" of the rescue deal, and will be taking legal advice in relation to Hyflux's action.

Salim-Medco was supposed to invest S$530 million into Hyflux in exchange for a 60 per cent stake once Hyflux's debts had been cleared, an investment that formed a key pillar in Hyflux's restructuring plans. But Salim-Medco had a change of heart in recent weeks, citing concerns about Hyflux's working capital requirements and the cash distribution plan under the proposed restructuring.

On Thursday, Hyflux said it had tried to meaningfully engage with the Indonesian investor group on multiple occasions: "However, in light of the investor's responses and conduct, the company has no confidence that the investor is prepared to continue to complete the proposed investment." 

Effectively, Salim-Medco has repudiated the restructuring agreement and Hyflux has accepted its repudiation, the Singapore company said. "The restructuring agreement is therefore terminated," Hyflux stated.

With Hyflux's court-sanctioned reprieve from creditors set to expire on April 30, the company now finds itself with its back to the wall.

Still, Hyflux sought to reassure stakeholders on Thursday, promising to "relentlessly pursue all other viable strategic opportunities" as part of the court-supervised restructuring.

"The company intends to work closely with the key creditor groups and relevant stakeholders to find mutually acceptable bases to enable the company to pursue such alternative opportunities," Hyflux said.

Recent actions by national water agency PUB also put it in a better position to find a new white knight, Hyflux said on Thursday.

Last month, PUB said that if Hyflux subsidiary Tuaspring Pte Ltd (TPL) is unable to cure its defaults by April 30, resulting in a termination of the Water Purchase Agreement, PUB will acquire the loss-making Tuaspring desalination plant for zero dollars, and without seeking compensation from TPL.

PUB had given TPL until April 30 to cure its defaults, but the termination of the Salim-Medco deal means that TPL's deadline to cure its defaults will be pushed forward to April 5 (Friday). Since Hyflux has no money to help TPL cure its defaults by Friday, PUB is expected to take back the water plant.

Potential investors who would have preferred to invest in Hyflux but not the water plant might therefore be drawn back to the table, Hyflux suggested: "(This) development could potentially enable the company to reach out to a wider pool of investors which may not otherwise have been interested in an investment in the group had this asset remained within the group and for which PUB's approval for a change in control of such asset will be required." 

Hyflux will continue liaising with the PUB on this aspect, it added.

As for the loss-making Tuaspring cogeneration power plant that sits on the same site, ownership will remain with Hyflux. Hyflux might appeal to the Singapore High Court to give it more time to find a white knight, but the Court will also need to see strong reasons that show that extending Hyflux's debt moratorium beyond April 30 can provide creditors with a better outcome than liquidation.

Hyflux noted: "There can be no assurance that the company will be successful in securing a new investor or in finding a viable alternative to execute the restructuring."

In swiftly delivered response on Thursday, Salim-Medco said: "SMI has been waiting for Hyflux to disclose further material information following multiple requests for such disclosure. The delay in disclosing this material information has prevented SMI from determining a workable allocation between working capital and the settlement amount to creditors under the restructuring agreement."

Salim-Medco reiterated that it had issued Hyflux two notices to remedy threats to the Tuaspring and Magtaa projects on March 18 and 25 respectively. These refer to the possible - now likely - termination of Tuaspring's water contract with PUB, and a notice from Magtaa's offtakers to terminate its water contract in December last year, which SMI has said it only learned about three months later. If not fixed, these threats allow SMI to call off the rescue deal, the investor has said.

"These threats have not been remedied," Salim-Medco said, adding that it had learned of a threat to a third major project on Wednesday.

"SMI has at all times abided by the restructuring agreement," Salim-Medco said.