Distress call

Can a new white knight rescue Hyflux?

As creditors like BNP Paribas press the Singapore-listed firm for payment, Hyflux is racing against a debt restructuring deadline to find a new white knight.
Hyflux has desalination plants in Oman and Algeria.
Hyflux has desalination plants in Oman and Algeria.

Pressing demands for repayment from creditors raise the question of whether a new white knight can rescue Hyflux in time. Just days after the Singapore-listed water treatment and power company unveiled United Arab Emirates (UAE) water and power company Utico as a potenial invesor, it disclosed demands for payment from BNP Paribas.

Time is short for Hyflux. The Singapore High Court only granted the company a debt moratorium until May 24. It has been teetering on the brink of liquidation since Indonesian conglomerates Salim Group and Medco Group announced on April 19 that they had cancelled plans to invest in the distressed firm. This was part of a plan to restructure debts of more than $2 billion.

"The longer that Hyflux goes without a firm agreement with a white knight, the smaller its chances of survival. It already has a number of calls for payment but further noises cannot be helpful," said one distressed debt analyst.

On Monday, Hyflux said that it had received a letter from BNP Paribas demanding payment of $57.7 million. This is related to Hyflux’s desalination plant in Magtaa, Algeria, for which Hyflux faces potential claims by the Algerian plant operator, Tahlyat Myah Magtaa (TMM). The French bank’s Algerian branch, BNP Paribas El Djazair, had issued performance bonds which guaranteed payment of claims by TMM.

Hyflux said it “disputes TMM’s right to make such claim” and is taking legal steps, including having filed an injunction application against BNP Paribas El Djazair, the issuer of the performance bond. The demand from BNP Paribas, like earlier debt claims, is expected to have what the company calls “a material impact” on Hyflux’s financial performance.

On May 3, Hyflux said that UAE's Utico had signed a non-binding letter of intent to inject S$400 million ($293.7 million) into the company for equity, working capital and “possible urgent interim funding”. Hyflux said it is also in discussions with other unnamed potential investors.

According to its website, Utico is the largest private utility provider in the UAE. Its shareholders include the sovereign institutions of Oman, Saudi Arabia, Bahrain and Brunei.

Hyflux’s financial and legal advisors say they are in “active discussions” with their counterparts in Utico with the hope of forging a binding investment contract. “Utico has informed the company that it is aware of the urgency of the restructuring,” it said. 

Utico intends to invest in Hyflux to ensure the latter’s key businesses remain operational and “to reach an amicable deal” with Hyflux’s creditors and investors, it added.

Under the earlier restructuring plan involving the Indonesian white knights, 34,000 retail investors in Hyflux’s preference shares and perpetual bonds stand to lose as much as 97% of their total principle of S$900 million. At the end of March, hundreds of retail investors protested against the previous restructuring plan in Singapore. Hyflux has also admitted S$2.81 billion in outstanding claims from 74 claimants including Mizuho Bank, PwC and DBS Bank.

OMAN PLANT

Utico’s willingness for its role as a possible white knight to be made public is a positive sign for a prospective deal. One factor favouring the success of Utico’s potential investment in Hyflux is that both companies share an interest in ensuring the completion of the Qurayyat desalination plant in Oman.

Utico had been part of a consortium that unsuccessfully bid for the $250 million contract to design, build, own and operate the Qurayyat plant, which Hyflux won in late 2014. By investing in Hyflux, Utico will gain access to the plant. This plant, however, has suffered delays. Oman media had reported that the Qurayyat plant would become operational in the fourth quarter of 2017, but its commercial operation date has been rescheduled to May 2020, according to Hyflux.

It is “very plausible” that Utico is genuinely interested in investing in Hyflux, said  Lina Gautama, Southeast Asia director of Hong Kong-headquartered risk consultancy Argo Associates. “There are tons of cash-rich Middle East investors looking to gain an Asia presence.”

At the end of April, Chang Cheow Teck resigned as Hyflux group executive vice president of operations, but its founder, Olivia Lum, remains executive chairman and chief executive officer.

If it does become a shareholder of Hyflux, Utico intends to retain Hyflux’s management.

The Securities Investors Association (Singapore) (SIAS), however, had called on Olivia Lum to step down as chairman. “Many do not believe that Olivia Lum and the current management can rise to the occasion to meet the challenges ahead. This must not be delayed any longer if trust is to be built with the stakeholders,” said SIAS president David Gerald

Lum has up to 40% voting rights on Hyflux, so she will win in any dispute with retail investors, accoding to one Hyflux perpetual bondholder. He said he preferred Hyflux to liquidate or be placed under judicial management.

Hyflux has told FinanceAsia that it has made adequate public disclosure of information. Utico did not repond to any questions.

¬ Haymarket Media Limited. All rights reserved.

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