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Utico seeks Hyflux confirmation that moratorium extension will not be prejudicial to creditors
POTENTIAL white knight Utico has said it supports a further extension of Hyflux's debt moratorium - as long as the insolvent water treatment firm can confirm there will be no "value leakage", and that an extension will not be prejudicial to Hyflux's creditors as well as perpetual and preference (PNP) shareholders.
This is of particular concern given that Hyflux still has not signed the definitive restructuring agreement, although Utico had signed it on the Aug 26 deadline, the Middle Eastern utility firm said in a statement on Friday.
Last week, Hyflux and three of its subsidiaries requested the court to extend their debt moratorium by another two months until November. The applications will be heard in court on Sept 30, when the previous extension expires.
On Friday, Utico claimed that Hyflux's board and its advisers have "refused" to guarantee that they will stop any "leaking of value" in the event the extension is granted by the court.
"The same issues - of advisers' fees, board representation and management oversight, all of which are related - have remained as the key gap items even till today," the utility firm wrote.
Hyflux on Aug 28 said parties had yet to resolve "final outstanding issues" in the draft agreements.
Utico's proposed a rescue package will see it taking an 88 per cent stake in Hyflux through a S$300 million equity injection and a S$100 million shareholder loan.
In addition, Utico is offering two possible options to the 34,000 retail PNP investors hoping to recover the S$900 million they invested in Hyflux, the utility firm told The Business Times. One option is a payout totalling S$50 million - based on small investors (who had invested S$2,000-S$3,000) each receiving 50 per cent of their holdings, up to S$1,500 per investor.
The other option is a S$100 million payout over four years plus a 4 per cent stake in the enlarged Utico group.
During a poll at an Aug 1 townhall at Sheraton Singapore arranged by the Securities Investors Association (Singapore) or Sias, more than 77 per cent of the 43 representative PNP attendees voted in favour of Utico's offer, the firm said on Friday. On Saturday, Utico told BT that it is open to organising a full meeting with all 34,000 PNP investors at a larger venue such as a stadium, if necessary. (see clarification note)
The restructuring agreement has also received the support of creditors and Sias, according to Utico chief executive Richard Menezes.
Moreover, Utico said it has written to Sias, stating that it is keen to file an affidavit with Sias' support and to offer further testimony of Utico's negotiations with Hyflux starting from its offer in mid-April 2019, if the court requires it.
The agreement signed by Utico on Aug 26 contains clauses requiring Hyflux to inform Utico of any other investor offers, said Mr Menezes. The clauses also imply a right of first refusal for Utico, as they give Utico the opportunity to match any higher or lower offers, he added.
"Hyflux's board is also obliged by fiduciary duty and responsibility to accept the highest offer without prejudice to creditors and PNP investors," Mr Menezes noted.
He emphasised that Utico remains committed to the same terms under the Aug 26 agreement.
"This situation was not caused by Utico and it has not gotten better with any further passage of time," he added.
Utico's statement on Friday comes almost a week after Sias said it is "fully supportive" of Hyflux's request for an extension of the debt moratorium to facilitate negotiations with Utico with a view to finalising and executing the agreement. Should a deal with Utico not be reached, an extension will also allow Hyflux to pursue discussions with other interested investors, Sias chief David Gerald said.
The investors' rights advocacy group believes there will be no prejudice caused to the creditors.
In August, Utico first gave Hyflux an ultimatum to ink a definitive deal, failing which it would walk away from a potential investment. However, Utico later changed its mind, giving Hyflux until Aug 26 to enter into the agreement.
Prior to Utico, Hyflux saw a failed deal with Indonesian consortium SM Investments, which offered a S$530 million plan to help Hyflux fix its defaults under the water contract. The rescue plan was canned in April.
Hyflux did not respond to BT's request for comment as at press time.
Clarification note: An earlier version of this article stated that the approval by PNP investors voting at the Aug 1 townhall was "binding". Utico has clarified that the poll was only of a sample of 43 attendees, as per Sias' recommendation, and that Utico is open to organising a full meeting of all PNP investors if necessary. The article has been amended to reflect this. A formal scheme meeting will need to be convened to obtain legally binding approvals from the creditor classes, which include the PNP investors.