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No money in hat as Hyflux judge attempts to order funds into escrow

The Court on Tuesday attempted to find a back-stop measure for the advisers of some 34,000 retail investors in Hyflux’s debt by getting creditors to chip in towards an escrow amount that would help to pay the fees for the advisers of the preference shares and perpetual securities (PnP) holders and medium-term note (MTN) holders in the event of a liquidation.

This is because these advisers would be unable to look to Sias or the individual PnP holders for their fees should the Utico deal fall through. Advisers of the  Securities Investors Association Singapore (Sias) include PricewaterhouseCoopers Advisory Services, Drew & Napier LLC, Akin Gump Strauss Hauer & Feld, BlackOak LLC and FTI Consulting.

The exercise appeared to be targeted especially at DBS, the sole lead manager and bookrunner of Hyflux’s issue of S$500 million, 6 per cent perpetual capital securities in 2016, and S$400 million, 6 per cent perpetual preference shares in 2011. Justice Aedit Abdullah at one point pressed for a response from any “creditor that might have gotten some benefit from the sale of product initially”.

The escrow suggestion also appeared to be an unpopular one, with opposition from Nish Shetty, partner at Clifford Chance Asia, which represents Hyflux. While acknowledging that retail investors should receive advice, he felt that an escrow sum would place the Sias advisers “in a better position than any other adviser” in the fee structure.

“Should that be the case? I can understand recovery, but should they be in a better position, and I would suggest no.”

He also worried that this may result in other creditors asking for similar arrangements, as the company simply does not have the money to meet such requests.

Eventually, after the hat had been passed around, it came back empty. No one volunteered, save for Hyflux which said that it can set aside at the most S$200,000 per month, up to a total of S$1 million, although this would aggravate its already-terrible cash flow situation.

At this, Mr Abdullah  said: “I would have thought that there would have been others who would have had some moral compulsion to step up as well, but apparently not.”

On the grounds that it would cost more for the company alone to set aside the money, he decided not to order any sum of money into escrow, but added that in future similar cases, the company should “press the other morally responsible parties earlier in the process”.

Once again, Justice Abdullah said: “The problem we have and why we have had to go through this whole process is we don’t seem to have an appropriate structure to deal with the provision of advice to the retail investors when things go wrong... What we have now is wholly inappropriate.”

In the hearing, the unsecured working group (UWG) also said that it has no confidence that rescue investor Utico and embattled water treatment firm Hyflux would  be able to resolve their issues. Consequently, it said that it would not be supporting the scheme.

The other “stumbling block” the UWG named was the fact that it continued to be paid only 14 per cent of its outstanding fees, versus 59 per cent for Hyflux’s adviser, nTan Corporate Advisory.

The UWG’s holdings are such that it exceeds the requisite 25 per cent required to block the vote within its class of unsecured creditors, which include the medium-term note holders. The other two classes are the inter-company creditors and PnP holders, respectively.

Eddee Ng, senior partner at Tan Kok Quan Partnership, who represents the UWG, requested to be paid the same percentage to date as nTan, but Justice Abdullah waved away the suggestion, saying no such direction will be given for creditors “who can take care of themselves” and negotiate it out. He did however urge Hyflux’s lawyers to resolve points of discontention with the UWG advisers so as to gain their support for the scheme.

The seven unsecured banks under the UWG include BNP Paribas, Mizuho Bank, KFW IPEX-Bank, Bangkok Bank and Standard Chartered Bank.

The scheme meeting for Hyflux will be held on April 22;  that for its subsidiaries will be a day later. If the scheme goes through, the Court will sanction the scheme on April 30.

Meanwhile, Hyflux in a statement on Monday expressed its “disappointment’” in Utico’s decision to conduct its negotiations in relation to the restructuring through public announcements.

This is especially as Utico’s press announcement contains material inaccuracies which “appear to be designed to further its negotiation with the company and dissuade competing third-party investors from investing”. Hyflux said it will address these inaccuracies and in due course in the right forum.