THE Securities Investors Association (Singapore) or Sias is urging the Hyflux board to consider an alternative restructuring plan that could see retail perp and pref shareholders (PnPs) recover just a bit more of their principal, if senior creditors agree to give up some of their share.
In a letter delivered 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 noteholders, unsecured banks and contingent claimants, have been promised a minimum recovery rate of 24.5 per cent under the same scheme.
For example, if only 50 per cent of contingent claims are crystallised, the recovery rate for the remaining unsecured creditors will be about 29 per cent, Hyflux's adviser 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 noteholders 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 in the event 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 between the rest of the unsecured claimants and PnPs.
He added: "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 between 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."
Mr Gerald had another complaint: "To date, no information has been provided by the company as to 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."
He added: "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 out 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 afternoon. "The board informed me that in response to our letter, it will be taking action, through its advisers, to talk to the senior unsecured creditors, as the decision regarding Sias' alternative proposal relies on the response from the senior unsecured creditors."
He said that he had made the proposal because a large number of perp and pref shareholders are "unhappy that the current offer is not equitable and they are receiving too little".
Hyflux did not immediately reply to The Business Times' request for comment.
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, noteholders 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 not explained the scenarios under which the contingent claims will be crystallised either.
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 be crystallised in a liquidation event.
Hyflux's perp holders have claims of S$500 million, while pref holders have claims of S$400 million.