Commentary: Saving Hyflux - stakeholders, patience is vital now
Date: 18 June 2018

First published in Business Times on 18 Jun 2018

WHEN any listed company, let alone one as prominent as water treatment specialists Hyflux, runs into financial problems and applies for court protection, it is only natural for stakeholders to worry about whether they will be able to recover their investments. In Hyflux's case, apart from its shock announcement on May 22 of a 30-day moratorium on creditors' claims, the 50,000-plus retail investors, including those holding ordinary shares and perpetual securities (perps) have been hit by an announcement by the trustee for the company's perps that Hyflux's failure to pay a coupon due last month constitutes a default event.

This means the trustee can institute proceedings for Hyflux to be wound up if it gets the mandate of perp holders to do so.

The trustee has informed Hyflux that it reserves this right and the rights of perp holders in this regard. As a result, anxiety levels have risen sharply and there is growing clamour for answers.

In such situations, it is also tempting for everyone to adopt an "every man for himself" stance - which is perfectly understandable when phrases like "judicial management" and "bankruptcy proceedings" emerge as potential outcomes.

However, in the view of the Securities Investors Association Singapore (SIAS), pushing individual claims to the fore and petitioning for a winding up would be a hasty mistake that must be avoided.

SIAS has had extensive experience in similar cases in the past which involved financially strapped firms like Ezion and Marco Polo Marine, and believes that what is needed now is for all stakeholders to recognise that it is in everyone's best interests to, first, grant Hyflux the six-month extension it needs to properly restructure its finances, and second, work together towards saving a company that experts agree is worth saving.

The initial moratorium ends on June 19, at which date the High Court will hear an application from Hyflux to extend protection from creditors' claims for six more months.
While secured creditors, banks, note holders and the trustee of the perps are well within their rights to apply for a winding up at that point, SIAS urges them not to do so - at least until the company has been given a fair and fighting chance to come up with a decent rescue plan, in the interests of all stakeholders.

Such a plan would invariably involve selling off Hyflux's main asset, the Tuaspring water desalination and gas turbine power plants and in this connection, it is absolutely critical that Hyflux be given sufficient time to obtain the best possible price.

If the sale is rushed, the offers that might be received would likely be on a "fire sale'' basis. However, if creditors agree to the six-month extension, the company would then have time to evaluate prospective offers with national water agency PUB and extract maximum value for all stakeholders.

Buyers too, would have more time to evaluate the merits of pitching for Tuaspring, which would then mean more offers from which to choose. We understand that Tuaspring's book value is S$1.3 billion, while Maybank's secured debt is about S$512 million.

If the plants can be sold for anywhere near book value, there would be sufficient funds to repay Maybank, with a decent sum left over for other creditors.

It should also be noted that Hyflux has a few mid-term projects that are nearing completion, the main one being the seawater reverse osmosis plant in Qurayyat in the Sultanate of Oman that is expected to be finished in August.
A six-month extension will cover its completion and help with finances ahead of the completion of the next project, which is the TuasOne waste-to-energy plant in May next year.

If all stakeholders are able to exercise patience for another six months, there is a high chance that Hyflux will be able to meet its obligations and continue as a going concern.
Stakeholders should be aware that the company has agreed to meet them at a townhall gathering to be organised by SIAS in order to address all their worries. This will be scheduled as soon as possible once the June 19 court hearing is completed.

"This is fundamentally a case of a highly promising company which has taken on too much too quickly, without sufficient attention to proper risk management. It is as far as I can see not a case of egregious behaviour or outrageously bad governance . . . this need not be the end or the beginning of the end. It could be a new beginning," wrote National University of Singapore professor Mak Yuen Teen in a recent article titled "Hyflux is worth trying to save".

SIAS agrees and calls on all interested parties, banks, and other creditors to set aside their individual claims for the time being, grant the company the six-month extension it seeks and work together in order to save Hyflux, the 50,000 individual investors, and other stakeholders.


David Gerald
Founder, President & CEO
Securities Investors Association (Singapore)

 
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