PnP holders with 'substantial debt' plan to block Utico's scheme

Singapore

HOLDERS of Hyflux's perpetual and preference (PnP) shares have expressed "dissatisfaction" with the Utico deal, and a number of them holding "substantial debt" are planning to vote against it at the scheme meeting in March.

The Securities Investors Association (Singapore), or Sias in short, on Monday wrote to the Hyflux board to convey the "pressing concerns" of the PnP informal steering committee.

Among a list of things, Sias wants to know why the deal terms were changed from what was discussed at a focus group meeting last August.

It also requests for more financial information on the Middle Eastern investor Utico, and on whether Hyflux founder and chief Olivia Lum would give up her entitlement as a PnP shareholder herself for the benefit of other retail investors.

Under the scheme, PnP shareholders have two options: The first is to receive an upfront cash payment of S$1,500 or 50 per cent of their holdings, whichever is lower.

The second option is a deferred payment option, under which PnP holders receive the same amount over a period of two years, with an added 1.25 per cent interest per annum. They will also receive an additional payout from a S$50 million pool of cash, to be distributed on a pro rata basis.

If Utico manages to list within two years of the completion of the Hyflux restructuring, the pro rata additional payout will come from the cash equivalent of a 4 per cent stake in Utico at the listing price or S$50 million, whichever is higher. Referring to option two of the offer, Sias said that Utico had told PnP holders at the focus group meeting that the additional cash amount would be "at least S$50 million". It wants to know why this amount will now be capped at S$50 million based on the percentage in value of P&P holders, including those who choose option one.

"That was not the deal proposed initially, and there is no reason why there should be a change at this stage."

The Business Times understands that various points of contention were raised to Utico and Hyflux from the start, but no amendment was made to the terms. The PnP holders informal steering committee was also not party to the signing of the restructuring agreement.

Sias has also voiced concern about Utico's ability to meet its financial obligations under the proposed scheme, especially for PnP holders going for option two, as it stretches over a four-year period.

Investors are worried that they may not get paid anything when the time comes. Furthermore, there is little financial information on the Utico entity that is providing a guarantee and share pledge to the PnP holders who choose option two.

On Ms Lum's participation in the scheme, Sias has pointed out that she was "more than willing" to give up her entitlement under the deal offered by the Salim-Medco consortium, which eventually fell through. Sias said: "Therefore, there is no reason for her not to do the same now. She has always maintained that she wants to do the best for PnPs."

It also wants to know whether the board, including Ms Lum, will abstain from voting on the Utico deal to avoid a conflict of interest.

Separately, Sias has also referred to a success fee of up to S$25 million, payable to Hyflux adviser nTan Corporate Advisory helmed by principal Nicky Tan, saying that PnP holders are seeking "a full understanding" of nTan's role in securing the deal to justify the "huge" fee amount, or they will vote against the deal. The sum is significant compared to the allocated sum of S$50 million to PnP holders, who have holdings of about S$900 million combined.

BT had earlier reported that nTan's success fee is computed based on the sum of a few things, including 7.5 per cent of the total value of Hyflux's debt that is waived, written off, extinguished, forgiven or avoided; 1.5 per cent of the total value of Hyflux's debt that is restructured, repaid or refinanced; and 1.5 per cent of any transaction undertaken by the Hyflux group and its associates.

In addition, Sias is also concerned about its own advisors' fees. It has appointed Drew & Napier and PriceWaterHouseCoopers Advisory Services to represent it as legal counsel and financial advisor, and appointed Akin Gump Strauss Hauer & Feld, BlackOak and FTI Consulting to collectively represent the PnP informal steering committee. Hyflux's lawyers had previously informed the Court that a sum of S$1.5 million had been set aside for the Sias advisors. However, an e-mail at the end of last year from Hyflux's lawyers to the PnP advisors said that "the company (Hyflux) had instructed nTan to set off the S$1.5 million against the fees owing to nTan shortly after the company's advisors and the Sias advisors were paid in October 2019".

Sias thus wants to clarify whether the S$1.5 million was still held in trust as it expects its advisors to continue to incur "significant costs" going forward, while working with the PnP shareholders to provide them the necessary information and context before voting on any scheme.

Sias has also reiterated its request for Hyflux to relay queries to Aqua Munda. It wants to know the identities of the principals behind Aqua Munda and the latter's intention with Hyflux, as well as how Aqua Munda plans to fund its offer to buy over some of the unsecured creditors' debt with upfront payment.

It also "strongly encourages" Aqua Munda to open any invitation to the PnP holders as soon as possible before the scheme meeting is convened, so that the PnP holders have time to consider both options.

For a scheme to be approved, a resolution must be passed by each class of debt holders by both 75 per cent of the votes cast and more than 50 per cent in number of people voting. This means that it will take just 25 per cent of the votes cast among the PnP holders to block the entire scheme.

Hyflux did not respond to BT's queries.