Hyflux says Salim-Medco rescue is off; both sides play the blame game

Singapore

HYFLUX said on Thursday that a key rescue deal from the Salim-Medco 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.

Now both sides are arguing over who killed the deal. The answer may determine who gets to pocket the S$38.9 million deposit that Salim-Medco (SMI) put into escrow last year, upon agreeing to play white knight for Hyflux.

Reacting to Hyflux's announcement on Thursday, SMI, led by Indonesian billionaire Anthoni Salim, said it was "surprised" by Hyflux's "purported termination" of the rescue deal, and will be taking legal advice in relation to Hyflux's action.

In a late Thursday night filing, Hyflux said it wrote to the investor to request a clear and unequivocal written confirmation of its commitment, and stated clearly that the company would have no choice but to terminate the restructuring agreement if the investor declined to do so.

"Regrettably, the investor, in a letter from its lawyers dated 4 April 2019, declined to provide the written confirmation sought," Hyflux added.

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 SMI 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."

It added: "They have also not refuted the statements in the media that SMI was 'slated to walk away' from the deal. Without the confirmation from SMI to dispel the overhanging uncertainty over this deal, it would not be possible for the stakeholders to have a proper vote."

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, and promised to "pursue all other viable strategic opportunities" and restart talks with key creditors and stakeholders.

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

Last month, PUB said if Hyflux subsidiary Tuaspring Pte Ltd (TPL) fails to cure its defaults, 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 TPL's deadline will be brought forward to Friday, April 5. Since Hyflux cannot help TPL by Friday, PUB is expected to take over the plant in early May.

Potential investors who would have preferred to invest in Hyflux but not the water plant may thus return to the table, Hyflux suggested. "(This) development could potentially enable the company to reach out to a wider pool of investors who 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."

As for the loss-making Tuaspring power plant on the same site, ownership will remain with Hyflux.

Hyflux might appeal to the Singapore High Court for more time to find a white knight, but the Court will need to be convinced that extending Hyflux's debt moratorium beyond April 30 can give creditors a better outcome than liquidation.

The Hyflux board will "quickly re-engage with previous interested parties" who had bid for Hyflux alongside SMI last year, Hyflux chief executive Olivia Lum told David Gerald, who leads the Securities Investors Association (Singapore), or SIAS.

Mr Gerald said: "She said the board needs some time to negotiate with interested parties and has asked that they be given some time and space to work on an alternative proposal to avoid liquidation. SIAS calls on senior creditors to give the company a chance to provide an alternative proposal and not put the company under liquidation hastily, in which case the retail investors who are the perps and preps holders will lose everything."

Hyflux has more than 2,500 employees worldwide. Asked if they would be let go if no white knight emerges by April 30, Hyflux said it would now hold talks with its creditors, and is unable to say more than what has been announced; it said it would give updates through its SGX announcements.

And when asked whether PUB might recruit some Tuaspring employees to run and maintain the desalination plant, Hyflux said it is unable to speak on PUB's behalf or comment on whether PUB's recruiting plans.

Hyflux's position now is that SMI repudiated their restructuring agreement, so Hyflux is entitled to SMI's S$38.9 million deposit.

Salim-Medco sees it differently, so the matter may be bound for the courts. "SMI has at all times abided by the restructuring agreement," it 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 notices to remedy threats to the Tuaspring and Magtaa projects on March 18 and 25 respectively. These refer to the now likely termination of Tuaspring's water contract with PUB, and a notice from Magtaa's offtakers to terminate its water contract last December, which SMI said it learned about only three months later.

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

But Hyflux, in a statement late on Thursday, dismissed the point about a "threat" to the third project, SingSpring Trust, in which it has a 30 per cent minority interest. It said that the majority interest holder, Keppel Infrastructure Fund Management (KIFM), had written to Hyflux on March 29 to say that the holding of the Scheme Meetings entitled it to exercise buy-out rights, that is, KIFM may choose to buy part or all of Hyflux's interest in SingSpring for value, subject to regulatory approvals, and sought to reserve those rights.

Specifically, KIFM had asked for confirmation that it would not be subject to the Schemes proposed, and that its buy-out rights would not be compromised or affected by these Schemes.

Hyflux said: "It is important to note that KIFM's letter does not indicate whether it intends to exercise such buy-out rights (which it is under no obligation to do so), and there can be no assurance that KIFM will ultimately choose to do so. Accordingly, there is no 'threat to a third major project' as asserted by the investor (SMI)."