PUB to take over Tuaspring plant if latter's defaults not resolved

Singapore

HYFLUX subsidiary Tuaspring Pte Ltd (TPL) has been slapped with a default notice from PUB for failing to keep its desalination plant "reliably operational" as required under the Water Purchase Agreement.

The national water agency said in a statement on Tuesday: "TPL has been unable to fulfil various contractual obligations under the agreement, in particular, by failing to keep the plant reliably operational as required. In addition, TPL has not been able to produce financial evidence to demonstrate its ability to keep the plant running for the next six months."

The agency added: "PUB has provided sufficient time for TPL to resolve its operational and financial defaults.

"Given TPL's current financial position, TPL's inability to fulfil its contractual obligations is unlikely to change in the immediate to longer term. PUB is taking steps to ensure that our water security is safeguarded."

Signed in 2011, the water purchase agreement requires Tuaspring to deliver up to 70 million gallons of desalinated water per day to PUB for a 25-year period from 2013 to 2038.

Now that a default notice has been served, Tuaspring has a cure period of 30 days until April 5 or "such longer period as may be reasonable", to consult with PUB on the steps it must take to cure the alleged defaults. If the defaults are not cured in time, PUB has the right to terminate the water contract by giving written notice of not less than 30 days to Tuaspring. PUB can also take control of the plant, once the default notice period expires.

Hyflux and Tuaspring said on Tuesday that they are seeking legal advice on the matters asserted in the default notice, and will commence consultations with PUB immediately.

To be sure, the PUB notice was issued to Tuaspring, and does not prevent Hyflux from proceeding with its restructuring scheme meeting in April. But if the scheme fails and the default notice period expires without Hyflux returning to solvency, PUB has the right to take back the plant. Maybank, Tuaspring's secured project finance lender, will be affected as well.

David Gerald, president of Securities Investors Association (Singapore), said: "PUB's notice to Hyflux has huge implications for the restructuring scheme. The company is currently insolvent and the only way it can comply with the default notice as it stands is to ensure restructuring is successful."

PUB's notice to Tuaspring comes amid a petition by over 2,000 affected Hyflux retail investors seeking a government bailout.

The debt-laden water treatment company is asking retail perpetual and preference shareholders to accept a 10.7 per cent recovery on their principal under its restructuring deal.

Medium-term note holders have been promised a recovery rate of at least 24.5 per cent. Many have voiced their unhappiness with the deal, and called for alternative schemes or liquidation. But with PUB's deadline hanging over Hyflux, it is not likely that there will be enough time to put creditors through a second scheme if the first one fails.

A termination of the water contract may also entitle the Salim-Medco consortium to call off the deal, Hyflux said.

Tuaspring is the largest of three desalination plants in Singapore. While the plant is a strategic asset, the same cannot be said for the company that runs the plant.

Even if Hyflux is liquidated, "there are measures in place to keep the plant in continued operation", PUB has said.