PUB accedes to Tuaspring's request to extend default notice period

NATIONAL water agency PUB said on Friday that it has acceded to Hyflux subsidiary Tuaspring Pte Ltd's request for more time to cure its defaults.

The default notice period has been extended to April 30, subject to conditions, instead of April 5.

PUB said that Tuaspring Pte Ltd (TPL) had on Wednesday requested for the deadline to be pushed out to the end of April.

It said in a statement on Friday: "TPL noted that it is currently loss-making and will require financial support from Hyflux. However, Hyflux's ability to provide financial support to TPL will depend on whether it is able to complete its restructuring and to obtain the investment from SM Investments."

SM Investments (SMI) is the Indonesian investor group led by billionaire Anthoni Salim that had agreed in October last year to give Hyflux a S$530 million lifeline in exchange for a controlling stake in the company once all its debts are settled.

Hyflux creditors are scheduled to vote on this rescue plan on April 5, although SMI said on Thursday that the deal no longer has its endorsement.

One of the main points of dispute arose from PUB's default notice. On March 5, PUB served a default notice to TPL, seeking remedy for both operational and financial defaults.

SMI has taken the position that PUB's default notice constitutes a "prescribed occurrence" that allows it to call off the rescue deal.

On the other hand, Hyflux has argued that a prescribed occurrence would take place only if PUB terminates its water-purchase agreement (WPA) with the Tuaspring water desalination plant. Such an event has not yet taken place, and the earliest that PUB can exercise its right to terminate the water contract - if Tuaspring's defaults were not remedied - was on April 6, Hyflux said. (With the extension, that date is now May 1). 

Now that PUB has agreed to give TPL more time to cure its defaults, the ball is in SMI's court.

PUB chief executive Ng Joo Hee emphasised on Friday that the agency's decision to issue the default notice was driven by the need to safeguard water security, "and not the petition by Hyflux's investors or the date of the scheme meetings".

If TPL's defaults are not cured by April 30, PUB has the right to take the Tuaspring desalination plant off TPL's hands for zero dollars, leaving Hyflux to own and run the Tuaspring power plant which sits on the same site.

Some Hyflux investors have expressed dismay at this possible outcome. David Gerald, president of the Securities Investors Association (Singapore) has also argued that PUB should pay a price equivalent to the replacement cost of building an equivalent plant.

Mr Ng clarified: "The purchase price of the desalination plant will be determined by an independent valuer in accordance with the WPA. Based on the current valuation, the purchase price is negative and TPL will hence have to pay PUB a compensation sum. TPL itself has stated that there is a high likelihood for this. The desalination plant has been losing and will likely continue to lose money for the next few years. In addition, PUB will have to incur costs to make good the plant and ensure that it operates reliably for its remaining lifespan."

He noted: "The Tuaspring desalination plant has been operational since 2013, and is now at a stage where major renewal works are required."

Mr Ng continued: "We note Hyflux has stated that, in the event the WPA is terminated and PUB purchases the Tuaspring desalination plant, there is a high likelihood that TPL would have to pay PUB a compensation sum under the WPA."

PUB is willing to waive any such compensation sum and purchase the water plant for zero dollars. Hyflux itself has noted that such a transaction would positively impact its value, he added.

So, if PUB purchases the water plant for zero dollars, this action "is beneficial to all stakeholders, including the about 50,000 retail investors as well as about 3,000 CPF (Central Provident Fund) members who had used their monies to purchase Hyflux ordinary and preference shares", Mr Ng said.

He concluded: "Therefore, PUB's actions would be favourable to TPL, and should not be used as the basis for SMI's possible decision to withdraw from the restructuring agreement."