Sias urges Hyflux senior creditors to give up more for perp and pref holders

Singapore

THE Securities Investors Association (Singapore) is urging the Hyflux board to consider an alternative restructuring plan under which retail perp and pref share holders (PnPs) can recover a bit more of their principal - although this can happen only if senior creditors agree to give up some of their share.

In a letter to the Hyflux board on Wednesday, Sias wrote that the present Hyflux scheme is "not acceptable" to PnPs, who face a flat recovery rate of 10.7 per cent, of which only 3 per cent will be paid in cash.

Higher up the pecking order, Hyflux's senior unsecured creditors, namely medium-term note holders, unsecured banks and contingent claimants, have been promised a minimum recovery rate of 24.5 per cent under the same scheme.

So if only half of contingent claims are crystallised, the recovery rate for the remaining unsecured creditors will be about 29 per cent, Hyflux's advisor EY has said.

This is because under the present scheme proposed by EY, if the contingent claims do not crystallise, 80 per cent of their allocations (which will be held in escrow) will be distributed to note holders and banks. The remaining 20 per cent will be distributed to the managers of the projects (management payout recipients), for which the contingent claim is extinguished.

Sias president David Gerald wrote: "The current proposal clearly favours the unsecured claims as they enjoy all the upside from the restructuring, which is clearly unequitable and thereby leaves the success of the restructuring in dire straits."

He has suggested that if any contingent claim does not crystallise, the recovery allocated to such contingent claim (including the contingent claim by Mitsubishi Heavy Industries of approximately S$230 million) should be distributed proportionately among the rest of the unsecured claimants and PnPs.

He wrote: "At a very minimum, any returns over and above the projected liquidation recovery of 8.7 per cent to the unsecured claims should be proportionately distributed among the unsecured claims and the PnPs. If the unsecured claims receive a return of x per cent higher than 8.7 per cent, the PnPs should receive the same increased return of x per cent."

He had another complaint - that no information has been given on the identity of the management payout recipients. "This is particularly troubling as the sum allocated to these recipients potentially amounts to approximately S$18.8 million in the event that all the contingent claims do not crystallise.

"Without a satisfactory response on the matters set out above, we are of the view that the PnPs are highly likely to forego the paltry and inequitable return as currently envisaged by the Hyflux scheme and vote against its acceptance. If the Hyflux scheme is not carried and the company goes into liquidation, the holders of the unsecured claims will stand to lose more than if they were to accept our alternative proposal as set out herein."

Mr Gerald said that he had presented his alternative proposal to the Hyflux board during a meeting on Wednesday and was told that the board would, through its advisors, talk to the senior unsecured creditors.

He said that he had made the proposal because a large number of PnP holders are "unhappy that the current offer is not equitable and they are receiving too little".

On Thursday, Hyflux told BT that the proposal has been communicated to the senior unsecured creditors through the advisors.

According to figures presented before a Singapore High Court last week, Hyflux's unsecured scheme parties comprise bank lenders with S$717 million in claims, note holders with S$278 million in claims, and contingent claims of S$678 million.

How the contingent claims were tallied is unclear. Hyflux has not provided all scheme parties with an exhaustive list of contingent claims and their respective values. It has also not listed the scenarios under which the contingent claims will be crystallised.

Examples of contingent liabilities include banker's guarantees, performance bonds and liquidated damages in a construction project, if there are delays. It is also possible that certain contingent claims will only crystallise in a liquidation event.

Hyflux's perp holders have claims of S$500 million, and pref share holders, S$400 million.