Hyflux suitor Utico seeks delay over water unit; PUB says 'no'

Singapore

EMIRATI utilities group Utico has invited Hyflux's junior creditors to meet in the coming days, as it seeks to rustle up support for a potential investment in the insolvent water cleaning company.

In a statement to the media on Thursday, Utico said it wants to meet Hyflux's retail perpetual and preference share holders (PNP), who sank a total of S$900 million into Hyflux.

The gesture is "a strong sign of bonafide intent", Utico said.

The water and power company is one of three potential rescuers with which Hyflux has recently deepened talks.

Discussions with Utico are based on a possible injection of S$400 million, but no binding offer has been signed yet, Hyflux said on Tuesday.

Richard Menezes, chief executive of Utico, said on Thursday: "We understand that the (PNP) investors of Hyflux are the ones who will suffer the most as junior unsecured creditors and their position and support must be resolved first."

He also said: "We will discuss and put a solid proposal after we hear them out... Any redemption or coupon must be a win-win deal."

Utico has attempted to restart talks with national water agency PUB. It said it made an official request to PUB on Wednesday to delay its seizure of Hyflux's Tuaspring desalination plant.

Mr Menezes said: "This (Tuaspring) was an asset built with PNP money. We feel PNP money and assets must be secured first since the (offering) prospectus stated the use of the funds for it."

But PUB says no.

A PUB spokesman told The Business Times: "We stand by all the announcements that have already been made about PUB taking over the Tuaspring desalination plant.

"The Water Purchase Agreement will be terminated on May 17 and PUB will take over the Tuaspring desalination plant on May 18."

The Tuaspring integrated water and power plant, though loss-making, was Hyflux's largest asset.

After Hyflux was unable to cure various defaults under the water contract due to its lack of cash, PUB issued Tuaspring a notice last month to take over ownership of the desalination plant for zero dollars and zero cost to Hyflux.

When BT showed PUB's response to a Utico spokesman, he replied: "This was a request and it had sound basis for it... We will have more next week."

It is believed that Hyflux's former potential investor, an Indonesian consortium led by billionaire Anthoni Salim, had also tried to renegotiate the water contract with PUB, but failed.

The Utico spokesman said: "PUB has not dealt with Utico so far and we cannot comment on past investors' engagement and outcomes. We are confident that we will arrive at a satisfactory resolution with PUB if given the opportunity."

He added: "We have already done a limited due diligence (on Hyflux) and are aware of the issues and our binding term sheet is valid, not subject to due diligence but as per current disclosures."

BT reached out to Hyflux for comment. Hyflux had earlier clarified that Utico had submitted a draft term sheet, not a binding offer.

Asked how Utico's potential S$400 million cash injection into Hyflux might be funded, the Utico spokesman told BT: "Utico is funding this as a mixture of debt and equity, which is well received considering we have the least gearing for a large water player in the industry."

Utico, which is privately held, is reportedly eyeing an initial public offering. It hired Emirates NBD Capital to oversee the process late last year.

In April this year, a fund managed by the Oman government agreed to invest US$400 million in Utico.

The deal made Utico the first large water player to have four sovereign investors as its shareholders, Mr Menezes said in April: "In the last three years the total deal of investments secured by Utico is about US$740 million, which includes sovereign investments from the governments of Saudi Arabia, Bahrain and Brunei and Spain's utility leader, Grupo Cobra."

On Thursday, Mr Menezes said Utico wants to be Hyflux's white knight: "It is a must that a fair and quick resolution is found for investors in the preference shares and perpetuals."

He stressed that any investor that only wants Hyflux and its assets or its businesses is not a "white knight".

Hyflux is not legally obliged to pay PNP investors under current conditions, Utico noted. "This is compounded further if the company is either sold to funds, to investors seeking overseas assets or goes into judicial management."

On Wednesday, a mystery investor sent Hyflux a non-binding letter of interest to acquire certain of its assets in Algeria, Oman, the Middle East and the North Africa region.

Hyflux declined to identify this mystery investor, revealing only that it is one of the 10 largest desalination companies globally, and a subsidiary of one of the world's leading infrastructure firms.

Separately, Hyflux is also in discussions with Oyster Bay Fund, a global multi-strategy investment fund incorporated in Bermuda, which Hyflux hopes will lead to a S$500 million investment, subject to due diligence and the execution of a definitive agreement.

Utico said: "Details of the PNP meeting with any regulatory approvals/permissions will be announced soon."