Hyflux woes not a sign that loans to power companies are riskier: Moody's

Singapore

HYFLUX's woes do not mean a general deterioration in the asset quality of Singapore bank loans to other large power generation companies, said Moody's Investors Service on Friday.

Hyflux shocked the market when it announced on Tuesday that it was seeking court protection to restructure some of its S$1.5 billion in outstanding debt. It also said that it planned to skip the upcoming coupon on its S$500 million perpetual securities.

Hyflux's restructuring is credit-negative, but not indicative of riskier bank exposures to Singapore power generation firms, said the rating agency.

Moody's said the restructuring could involve for Hyflux creditors a combination of haircuts, extension of debt maturities or adjustments to interest rates, leading to possible financial losses.

"Nevertheless, most large power generation companies in Singapore have strong shareholders with diversified portfolios of generation assets," said Eugene Tarzimanov, a Moody's vice-president and senior credit officer.

"In addition, these companies' power assets were mostly commissioned some years ago, implying that the debt load on these projects would be more manageable when compared with Hyflux's Tuaspring, which was commissioned in 2015," he said.

On Hyflux in particular, Moody's said the company has a large amount of secured debt, which heightens the risk to its unsecured creditors. Moody's pointed out that 68 per cent of Hyflux's debt is unsecured, with 51 per cent in unsecured bank loans.

According to Hyflux's annual report, its creditors include about 30 financial institutions, mostly Singapore branches and subsidiaries of foreign banks.

A spokesman for DBS Bank, South-east Asia's largest bank, told The Business Times that "we do have some exposure to Hyflux, but the impact on our earnings will not be material".

Some banks BT contacted declined to comment, while a United Overseas Bank spokesman said that as part of the Banking Act, it could not confirm or disclose any information on customer relationships it may or may not have.

Moody's said these institutions, as well as other investors, could suffer losses on their Hyflux exposures.

On the exposure of the Singapore branch of Maybank, Moody's said potential losses should be limited.

Maybank, Malaysia's biggest bank, provided an 18-year S$720 million financing facility to Hyflux's Tuaspring project in 2013; Moody's believes Maybank's exposure has decreased since 2013 because of loan amortisation.

"The bank does not comment on specific customers," said a Maybank spokesman when asked about its Hyflux exposure.

Moody's said it assumes that most, or all, of Maybank's exposure is secured by the Tuaspring project or related cash-flow receivables or both. This situation should mitigate losses for Maybank in a worst-case scenario, in which Hyflux goes into bankruptcy.

Maybank shares steadied on Friday, after falling the previous two days, and closed unchanged at RM10.26. The stock has fallen 5.7 per cent from Tuesday's RM10.88. Its shares had been enjoying a pretty good 6-month rally until then from its low of RM9.15 reached last November.

David Gerald, president of Securities Investors Association (Singapore) said Hyflux will meet shareholders and perpetual and preference shareholders to update them on the reorganisation process.

Mr Gerald who met Hyflux chief executive Olivia Lum on Friday afternoon said in a statement that SIAS is reassured by Ms Lum that Hyflux will actively engage SIAS in its current efforts to reorganise its business and address its debt woes.

Hyflux is agreeable to meet shareholders, note holders, perpetual securities holders and preferences shareholders at townhall meetings that SIAS will be organising in due course to update them on the progress, he said.

"SIAS has reiterated its call to accord equal treatment to the perpetual and preferential securities investors as they are retail investors and are not on the same footing as institutional investors. SIAS would like to see every effort made to find ways of preserving the value of their investment."

Hyflux on Friday night said a pre-trial conference (PTC) has been scheduled on May 28.

It said the PTC is not a substantive hearing and generally administrative in nature and for the court to give directions on the conduct of the proceedings.

Hyflux also said it has received letters of demand and/or notices of default but no proceedings can start except with the permission of the court.