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Where is Hyflux now?

Stakeholders have been patient, but company has said little about its chances of remaining a going concern and what it's doing about it.

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Maximum transparency must be practised so as to provide stakeholders with comfort that the price discovery process for Tuaspring is rigorous and competitive.

IN June, the Securities Investors Association (Singapore) (SIAS) appealed to stakeholders of troubled water treatment firm Hyflux to give the company the time it needs to try and get its affairs in order ("Saving Hyflux: Stakeholders, patience is vital now", BT, June 18, 2018). We were encouraged by the response - Hyflux was given a six-month extension to a 30-day moratorium from winding-up action that started on May 22 and ended on June 19. That extension will expire in December but before that, on 2.30pm on Oct 8, there will be a court hearing to provide creditors and interested parties with an update of the reorganisation process.

In contrast to our June appeal, which was directed at Hyflux's stakeholders to stay their hand and give the company breathing space, this time SIAS' appeal is to the company itself - to provide a full and frank appraisal on Oct 8 of what has been happening behind the scenes and what are the chances of securing the necessary funding to preserve the company's going concern status.

WHY HYFLUX DESERVES TO BE SAVED

At the outset, it must be noted that SIAS views Hyflux as worth saving for several reasons. First, Hyflux was for many years a shining example of Singapore Inc, a wholly, homegrown company that sprouted from humble origins to become a world leader in water treatment technology. It is therefore a brand name worth preserving.

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Second, even though it is not currently profitable and is suffering liquidity issues, Hyflux has continued to secure new projects - most notably in Oman, Turkey and Iran - which demonstrates there is still demand for its services as well as confidence in the company to deliver on its contracts.

Third, the spillover ramifications of Hyflux being wound up are painful to consider - 2,000 employees, 50,000 retail investors whose savings are on the line and dozens of smaller businesses and sub-contractors who rely on the company for their livelihoods.

ROLE OF THE BOARD AND THE TUASPRING SALE

Come Oct 8, SIAS notes that stakeholders would have been kept in the dark for almost five months - certainly long enough for anxiety levels to have risen sharply. The only way to help alleviate this is through a thorough and open update and in this regard, SIAS notes the crucial role the Board has to play.

The single most important consideration in the minds of all stakeholders is the progress of negotiations on the sale of Hyflux's main asset, the Tuaspring plant. It is, therefore, absolutely crucial that the directors focus their efforts on Oct 8 to provide meaningful updates.

For example, Bloomberg news agency on Oct 2 reported that SembCorp Industries has been the only party to submit a final bid and that its offer was below Tuaspring's book value. Bloomberg also reported that Keppel Corp did not submit a bid.

We assume that the board is exercising its duty to cast the net as widely as possible in search for investors and buyers for Tuaspring and not focusing only on preferred parties. The best prospect of returns to stakeholders is having many competitive bidders as that's the only way to get the highest possible price.

In short, maximum transparency must be practised so as to provide stakeholders with comfort that the price discovery process for Tuaspring is rigorous and competitive.

It is imperative that the board impress upon the other involved players, such as the banks and offtakers, of what is at stake and the knock-on effect or consequences for the tens of thousands of retail investors. Banks and offtakers should not restrict the sale of any asset to preferred bidders. Since Hyflux has many creditors, some with more clout than others, decisions cannot be made without their buy-in.

Different classes of creditors would only be concerned with their exposure. This mindset, though natural, will be harmful to those lower in the hierarchy. Likewise, for the counterparties to the crucial contract whose agreement is required for any new party to come in and take over, the board must bring to the attention of these parties - banks and offtakers - that beyond their own commercial considerations and legal entitlements, there are people downstream who will be affected.

SIAS hopes that when considering interests of creditors, while giving effect to priorities under contract, the interests of holders of public debt should also be considered, including the 34,000 holders of Hyflux Perpetual and Preference shares securities, whose savings are at stake.

To assist the company with its restructuring and in developing a proposal, SIAS has put in place a steering committee with the necessary legal and financial advisors. This is to ensure interests of all stakeholders are taken into account and not just the secured bank lenders, and ensuring that the retail investors have their say on the restructuring. Hyflux has accepted SIAS' recommendation that these committees engage top-notch legal and financial advisors and to bear the costs.

TRANSPARENCY AND ENGAGEMENT

It is hoped that Hyflux will make even greater effort at sharing information on key aspects of the process as it is ongoing. Various stakeholders have reached out to SIAS to say they are only able to see limited information on the ongoing discussions for the restructurings. SIAS understands there was a court filing on Sept 21, 2018 to update on the progress of the restructuring, where stakeholders were provided relevant information. SIAS urges Hyflux to be as transparent as possible in any ongoing discussions or public sale process for its assets.

Given the importance of Tuaspring (almost a third of the Group's assets net book value) details of the sale process of the largest asset of Hyflux group should be made available. The only information so far is that a number of bids has been received. There has been no explanation of the process carried out and the efforts made to secure more bidders. Nor is there clarity yet on how many interested parties were approached and how those who advanced to the bidding stage were selected.

The importance of a rigorous bidding process for this key asset cannot be overstated. A limited number of bidders won't incentivise competitive bids, resulting in depressed returns to stakeholders.

On Oct 8, SIAS hopes the company will return the courtesy afforded to the company by its stakeholders with a full and open update. The overriding goal has to be disclosures that provide as many answers as possible and offer reassurance to alleviate the still-high anxiety among stakeholders. Hyflux must continue to engage with stakeholders in a timely manner to achieve this.

Finally, given the strategic importance of water and power generation to Singapore, SIAS hopes that the ultimate buyer will have strong links to this country, but by the same token it is important that the Board cast their net as wide as possible to maximise the chances of success.

  • The writer is the founder, president and CEO of Securities Investors Association (Singapore) (SIAS)