Commentary: Hyflux’s PnP holders still waiting for concrete terms: Sias

Date: July 27, 2020

First published in Business Times on 27 July 2020

MORE than two years after water treatment firm Hyflux announced it was in dire financial straits and unable to meet its debt obligations, the market is still no wiser as to what exactly the fate of the company will be.

While several white knights have emerged since then, no proposal has progressed to a satisfactory conclusion. The closest was Indonesia’s Salim group, but that deal fell through under a cloud of unresolved issues such as the dispute over a S$39 million deposit.

Recently, offers have emerged from Utico, Pison and Aqua Munda. These rescuers are unfamiliar to the local market and, as such, will be subject to close scrutiny.

The Middle East investor Utico, which has been in discussions with Hyflux since last year, had tabled a binding offer. But whether or not it has the funds to see it through is still not known with any certainty. To-date, despite Sias’s repeated queries, it has yet to provide sufficient details of its financial standing.

The other, Singapore-incorporated Aqua Munda, has offered to buy Hyflux’s senior unsecured debt at a minimum discount of 85 per cent. But like Utico, it has also yet to disclose its financials as well as the identities of its backers.

The most recent bidder is Pison Investments, which only came onto the scene in early July and has disclosed resources amounting to S$200 million in an Indonesian bank to buy out the senior unsecured creditors.

But so far, there is nothing on the table for preference and perpetual (PnP) securities holders from either Aqua Munda or Pison Investments, despite Sias’s repeated promptings and requests.

A common thread running through Aqua Munda and Pison Investment’s offers is the requirement that Hyflux’s Olivia Lum and her management team should be kept intact.

Meanwhile, holders of Hyflux’s PnPs are still anxious about the fate of their investments, bearing in mind that at the company’s first town hall meeting with stakeholders in July 2018, founder-CEO Olivia Lum said: “While the shareholders, perps and preference shares rank behind the senior debt, my instruction to the advisers is that please try to take care of the small investors.”

At that meeting she also went on to say her goal is “to protect small investors, and the advisers would have to come up with a plan to treat all stakeholders fairly”.

So far, the estimated 34,000 PnP holders, who ploughed their savings into instruments to the tune of S$900 million, are still waiting for an eventual plan, fair to them, to emerge.

Quite understandably, all this adds up to a mounting sense of helplessness and frustration among PnP holders. Sias shares these feelings. Some questions posed by Sias remain unanswered to date, including whether the Hyflux board will abstain from voting on any scheme, and whether the Hyflux board will give up their entitlements under any scheme in favour of the PnP holders.

Communication gap

Throughout this episode, Sias has aimed to ensure the company is not wound up as this would leave small investors with virtually nothing; bridge the communication gap between the company, its advisers and the thousands of stakeholders so that the latter are better informed and not left groping in the dark for answers; and ensure a fair settlement for everyone, especially PnP holders, many of whom have ploughed in their life savings.

Over the past two years, Sias, together with our advisers Drew & Napier and PwC, has organised and chaired numerous town halls, small group meetings and webinars, and answered dozens of emails and phone calls from PnP holders and Hyflux’s investors. At all these meetings, Sias has provided independent legal and financial advice so that small investors are given an accurate picture and can make informed decisions.

Lest anyone question Sias’s independence, in February last year it sent a list of 34 probing questions for Hyflux’s board to answer relating to dividends paid to Ms Lum and expressing serious concerns over various accounting and corporate governance issues. To the company’s credit, it did reply, though its answers were seen by some observers to raise even more questions.

Sias has repeatedly called for Hyflux to appoint an independent board, allowing a new set of directors to oversee the restructuring.

With respect to Utico’s offer, Sias in the eight months between May 17, 2019 and Jan 22, 2020 undertook 27 initiatives aimed at improving the offer that had been made. Sias continues to query Utico, most recently on July 19, pushing for more clarity.

Sias has also lobbied several times in the media for all concerned to do their utmost to save a company that it felt is worth saving. It has also spoken up against proposals that it felt were not fair to retail investors.

On July 27, the Court will hear, among other things, an application for an extension of a debt moratorium. What, therefore, is on the table?

First, a revised binding offer by Utico has just been made, which includes an offer for PnP holders. Sias will scrutinise and review the revised offer with its advisers, and then communicate with PnP holders in due course.

Second, Sias will continue to push Pison and Aqua Munda to table their offers. Pison Investment and Aqua Munda have informed Sias that they will do so and Sias would strongly urge them to make public their offers to the PnP holders as soon as possible. In this connection, Sias’s priority will be the interests of the PnP holders who are subordinated in this exercise.

As Sias has previously stated, it will not support any offer that does not have a fair solution for PnP holders and would urge all potential investors to make public their offers with concrete terms for the PnP holders as soon as possible.

If an extension of the moratorium results in current and potential offerors putting forth an acceptable offer for PnP holders, a short extension of time may be useful – but only if concrete terms are put forward for the PnP holders.

  • The writer is David Gerald, founder, president and CEO of the Securities Investors Association (Singapore)