Date: April 1, 2019
First published in The Business Times on 30 March 2019
IN the past few months, developments surrounding troubled water treatment firm Hyflux Ltd have accelerated to the point that stakeholders could be forgiven for being thoroughly confused as to the status of the restructuring that has been proposed, whether white knight investor SM Investments (SMI) will stay or leave, and most importantly, how much money each class of stakeholder could receive, if any.
Aggravating this confusion is widespread speculation, in part brought on by efforts from some stakeholders to secure the best deal for themselves. For example, a petition emerged recently to try and pressure the government to save Hyflux because of the strategic nature of the latter’s assets, this despite Hyflux categorically stating last year that it would not be asking the government for help.
Ironically, there is now speculation as to whether it was the circulation of this petition which currently bears about 4,500 signatures that has provoked national water agency PUB earlier this month to drop the bombshell that it did, in the form of a default notice issued to Hyflux’s subsidiary Tuaspring Ltd (TPL).
PUB on Friday stated that the petition had no bearing on its decision to issue the default notice. Meanwhile, a group of Hyflux investors have taken to highlighting their plight by organising a gathering at Hong Lim Park.
It is to be noted that PUB has now extended, at the request of TPL, the deadline for the default notice period to Apr 30, subject to conditions.
It would be interesting to know the answer to the question of what really went wrong with Hyflux, given its once-lofty status in the local corporate scene. However, focusing on this now would only detract from the crucial tasks on hand, which is to save the company and try and preserve something for all stakeholders.
Sias therefore calls on all parties to instead concentrate on two issues of paramount importance and to set aside the “noise” for now.
First, the only party which has shown any inclination to provide emergency funding for Hyflux is SMI. No one else has come forward despite having more than 10 months to do their evaluations, so SMI represents the only hope of staving off liquidation, despite recent comments that SMI has not agreed with Hyflux on the cash allocation to creditors.
If the company does get wound up, note that preference, perpetual and ordinary (PPO) shareholders will very likely end up with nothing because once more senior claims have been paid, no money would be left and the company would in all likelihood cease to exist.
It is therefore absolutely necessary to ensure SMI does not walk away from the agreement it signed last October which gives it a 60 per cent stake in return for a cash investment of S$400 million and a shareholder’s loan of S$130 million.
Second, for the restructuring to proceed, it has to be approved by at least 50 per cent of the number of shareholders attending each scheme meeting as well as 75 per cent in value. In other words, every stakeholder – irrespective of the number of shares, notes or bonds they own – must vote.
It would be a terrible shame if the plan fails and Hyflux is placed in liquidation because of apathy or indifference on the part of small shareholders who simply do not bother to turn up and vote.
I say this because Hyflux has almost 50,000 PPO retail investors, which places the company’s collapse almost on a par with the Clob International crisis of 1999 and the S-chips debacle of the late 2000s.
In both those previous disasters, thousands of retail investors were left to grope in the dark for answers. As speculation and frustration mounted, calls then emerged for government or regulatory intervention to help Singaporeans salvage some of their savings. This did not materialise, and shareholders were left to eventually suffer massive losses.
Even though the ongoing Hyflux saga bears the same hallmarks of opacity and clamour for a government bailout that is not on the cards, Sias hopes that if all parties concerned focus their attention on doing everything to ensure SMI does not walk away and turning up in sufficient numbers to vote, the outcome would be different this time. Investors must vote with their head and not with their heart.
- The writer is David Gerald, founder, president and CEO of the Securities Investors Association (Singapore)