Retail investors have expressed unhappiness over Hyflux’s proposed plan to restructure its debt of more than S$2.8 billion ($2 billion). One retail investor told FinanceAsia that a possible lawsuit against the Singapore-listed company’s board of directors is brewing.
About 26 retail investors are contemplating legal action against Hyflux’s board of directors for alleged misleading statements and alleged insufficient disclosure.
A number of Hyflux perpetual bondholders are already in talks with lawyers on possible legal action, related to non-disclosure of material information about the group's Tuaspring plant.
Hyflux has not replied to FinanceAsia’s queries.
On March 18, the water treatment firm warned that two Indonesian conglomerates, Salim Group and Medco Group, might walk away from their plans to rescue the troubled company, if Hyflux is unable to resolve problems at its Tuaspring water and power plant by the end of the month. The debt restructuring plan envisages Salim and Medco paying S$530 million ($392.1 million) to acquire 60% of Hyflux.
At the beginning of March, Singapore's Public Utilities Board (PUB) announced that it would take over Tuaspring if the plant’s problems are not resolved by early April. It said that the Tuaspring plant had not demonstrated financial proof that it could remain operational for the next six months.
Given that Tuaspring is one of the group's key assets, the Indonesian conglomerates are likely to lose interest in Hyflux if PUB takes it over. In this scenario, default is “almost inevitable”, said Nitin Pangarkar, academic director of the MBA programme at National University of Singapore.
If liquidation occurs, it will be “good news”, said one bondholder. “By liquidating the company, it will be easier to sue the board of directors. After liquidation, its books will be opened.”
Phil Yee, a Singaporean who holds Hyflux preference shares, said: “We do not welcome SM Investments [Salim and Medco], and therefore I do not feel any loss if he walks away.”
The 34,000 holders of Hyflux perpetual bonds and preference shares will lose 97% of their principle under Hyflux’s debt restructuring plan, said Yee. Owners of Hyflux perpetual bonds and preference shares will receive S$27 million in cash and 10.26% of the company for the S$900 million they are owed.
More than 300 holders of Hyflux perpetual bonds and preference shares plan to vote against the restructuring plan at a creditors’ meeting on April 5.
Some investors dare not tell their families their prospective losses from Hyflux, for fear of disrupting “family harmony”, Yee revealed.
Many retail investors bought preference shares with subordinated claims. They will will suffer large losses, while institutional investors will fare slightly better.
In mid-March, Hyflux admitted S$2.81 billion of claims from 74 claimants. These include Mizuho Bank, OCBC, DBS Bank, BNP Paribas, PwC, United Overseas Bank and Land Bank of Taiwan.
Previously, many Singaporean investors perceived Hyflux as a blue-chip company as unsinkable as the Titanic, because Singapore government investment company Temasek took a 4.76% stake in Hyflux in 2003. Temasek reduced its stake to 0.89% two-years later, and never guaranteed any of the group's securities.
Over the last decade, Hyflux has embarked on a series of highly capital-intensive projects. But for a number of reasons, such as the decline in power prices, the firm’s revenues didn’t increase fast enough.
“Hyflux took on too many different strategies being implemented at the same time. It is common to underestimate risks and overestimate synergies,” said the NUS' Pangarkar.
With heavy losses expected from Hyflux, Singapore retail investors will be more reluctant to buy bonds in future or demand higher yields, market players said.
Compared to other jurisdictions like Hong Kong, Singapore has a higher proportion of retail investors who buy bonds.
After no bond defaults in the Lion City from 2009 to late 2015, Singapore has been plagued by a number since then. PT Trikomsel Oke, an Indonesian telecom company, defaulted on its Singapore dollar bonds in November 2015.
That was followed by the default of fishery firm Pacific Andes Resources Development in early 2016, and that of oil and gas services company Swissco in October 2016.
In March 2017, offshore and marine group Swiber Holdings defaulted on its Singapore dollar debt, and in June last year CW Group, a Hong Kong-listed engineering and renewable energy company, defaulted on its Singapore dollar debt.