Singapore's Hyflux besieged on several fronts

The distressed utility group, already facing potential legal action in Algeria and from retail investors at home, is now squabbling with two would-be Indonesia white nights.
Investors of Hyflux plan a protest in Singapore, where demonstrations are strictly controlled
Investors of Hyflux plan a protest in Singapore, where demonstrations are strictly controlled

Hyflux appears besieged by unhappy white knights, disgruntled investors and disputes with Algerian companies. It's unclear where the Singapore-listed company goes from here.

On Tuesday it highlighted disagreements with two Indonesian conglomerates that have offered to rescue it, raising the possibility that Salim Group and Medco Group might yet walk away from the distressed firm.

But that could be welcomed by some investors, given the slim pickings they could be left with anyway.

In a statement, Hyflux said it “has tried but has been unable to meaningfully engage” SM Investments (the consortium comprising Salim and Medco).

In recent weeks, the Indonesian duo have jointly issued notices to Hyflux, “the contents of which are seriously disputed by the company.” Hyflux, which is engaged in water treatment and power, said the disagreements include matters related to Hyflux’s seawater desalination plant in Algeria.

The restructuring agreement struck with SM Investments in October, nonetheless, remains in force, Hyflux added. Under this agreement to restructure Hyflux’s debt which exceeds $2 billion, Salim and Medco will pay S$530 million ($391 million) to acquire 60% of Hyflux.

There is the possibility of the restructuring deal falling through, Nitin Pangarkar, academic director of the MBA programme at the National University of Singapore, told FinanceAsia. “The situation is very fluid.”

It cannot be a good sign that Hyflux is squabbling with the white knights, a Hong Kong-based distressed debt consultant who spoke on condition of anonymity told FinanceAsia. And the implications for existing investors could be devastating if no alternative is found.

“If the White Knight option falls through, then the outlook is grim for the perpetual bondholders and preferential shareholders, as their return in a liquidation could be negligible and certainly zero for the preferential shareholders,” the consultant said.

But then if the restructuring agreement does go through, the 34,000 retail investors in Hyflux’s perpetual bonds and preference shares stand to lose over 90% of their investments, since they will receive only S$27 million in cash plus 10.26% for the S$900 million they are owed.

As one retail investor with Hyflux preference shares told FinanceAsia last week, it would be better if Salim and Medco walked away.

“This is the dilemma. It is in all parties’ interests to keep the business going to benefit from future cash flows, but if an agreement cannot be found then the alternative is an increased loss for all,” the consultant said.


Hyflux disclosed that it had received a notice from its two would-be Indonesian white knights asking the company to resolve disputes related to its Algerian desalination plant by April 8. This plant supplies water to Algérienne des Eaux, an Algerian state-owned water company of Algeria, and Sonatrach, an Algerian state-owned oil company. Algerienne des Eaux and Sonatrach have asked Hyflux to terminate the water supply agreement, but Hyflux has so far refused.

Another Algerian firm, Algerian Energy Company, filed a request for arbitration with the International Court of Arbitration of the International Chamber of Commerce (ICC) in Paris on February 5, in relation to Hyflux’s plant in Algeria, Hyflux said on Monday.

The arbitration proceedings are directed against Hyflux, Malakoff Corporation (a Malaysian-listed power company) and Tlemcen Desalination Investment Company (the controlling shareholder of the desalination plant). In its arbitration action, Algerian Energy Company is seeking the transfer of shares in the plant from Tlemcen, Malakoff announced on March 20 in a stock market filing. Hyflux, which owns 30% of Tlemcen, has so far refused to transfer the shares.

Algerian Energy Company also alleges that the three defendants are liable for breaches and negligence in the design, operation and maintenance of the plant, Malakoff said.

Some retail investors in Hyflux plan to stage a rally on Saturday at Hong Lim Park, urging investors to vote against Hyflux’s restructuring proposal at a meeting on April 5. Protests are rare in the tightly controlled city-state.

About 40 retail investors are considering legal action against Hyflux’s board of directors, one of the investors told FinanceAsia. This is an increase from the roughly 26 investors contemplating legal action, as FinanceAsia reported on March 20. Representatives of these investors have met three lawyers and plan to meet a fourth lawyer on Thursday, the investor said.

In the possible lawsuit, plaintiffs allege Hyflux failed to disclose enough material information to investors. Hyflux did not reply to FinanceAsia’s queries.

The Singapore Investors Association (Singapore) (SIAS), in a letter to Hyflux’s board on Monday, said, “The company is not giving confidence to investors that it will resolve all outstanding issues to keep the restructuring deal on track.”

SIAS’s letter asked Hyflux’s board to address investors’ concerns.

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