Letter to Hyflux Board dated 5 March 2020: Outstanding queries | Securities Investors Association (Singapore)

Date: March 6, 2020

Dear Members of Hyflux Board,

We refer to our email dated 13 January 2020 (timestamped 3:29pm) and your email dated 19 February 2020 (timestamped 7:19pm).

A: Outstanding queries from our email dated 13 January 2020


Thank you for your responses to some of the P&P ISC’s queries. We would be grateful if you could also respond to the following queries which were raised in our email dated 13 January 2020: Based on the Utico deal currently proposed, there is no mention that Ms Olivia Lum will be giving up her entitlement in her position as a holder of preference shares and perpetual securities for the benefit of the other P&Ps under any scheme proposed. Ms Lum was previously willing to give up such entitlement under the SMI deal so there is no reason for her to change her position now. We have raised the same query with Utico and Utico’s response was that “Hyflux directors / Ms Lum have to state if there is a change in their stance from having forfeited publicly their notes and shares early last year in favour of the P&Ps. If they don’t change their stand, our stand remains they are excluded de facto.” As Utico’s position appears to be that the Hyflux board members continue to give up their entitlements as per the SMI deal, we would therefore invite Ms Lum to confirm that, similar to the SMI deal, she will give up her entitlement for the benefit of the other P&P holders under the Utico deal. Please also confirm whether the other Hyflux board members will take the same position as Ms Lum under the Utico deal. Further, it is also the concern of the P&Ps as to whether the board, including Olivia Lum, will rightfully abstain from voting on the Utico deal to avoid the obvious conflict of interest. Please confirm the board’s position on this.



B: Further queries received from P&P ISC members since 13 January 2020


Since our email dated 13 January 2020, we have received further queries from the P&P ISC members which we set out below.

	Utico deal / Scheme Document


While we note that Hyflux’s position is that the releases of directors upon the scheme becoming effective is something which has been agreed between Utico and Hyflux, some P&P ISC members have expressed disagreement with such release. Some relevant extracts of emails which we received from the P&P ISC members are set out below: “Directors should not be fearful of legal action against them.I disagree that as part of the agreement, directors should be released from any future claims against them;” “I strongly disagree* to release claims against the directors after the scheme becomes effective.*”



In the circumstances, we strongly urge Hyflux to reconsider its position on including a release of directors upon the scheme becoming effective.

Separately, in response to the P&Ps’ concerns regarding Utico’s ability to meet their obligations under the proposed scheme, Hyflux’s position is that Hyflux has “instructed our legal advisors to reach out to Utico’s legal advisors, White & Case, to obtain further financial information on the Utico entities”.

At the stakeholders’ meeting held on 27 February 2020, Utico stated that their position remains that they will not be providing their financial information to SIAS’ advisors unless SIAS provides a written recommendation to the P&P holders to support the deal. We appreciate that Hyflux had raised a similar concern at the said meeting and are of the view that some level of disclosure should be made to the P&P holders to enable them to make an informed decision on whether to accept the Utico deal.

Given the importance of having transparency on Utico’s creditworthiness, which would have a direct impact on the scheme of arrangement proposed by Hyflux, SIAS would strongly urge that Hyflux provide, and as appropriate request Utico to provide, the required evidence to give comfort to the P&P holders that the deferred payment obligations set out under the scheme are sufficiently provided for.

	Aqua Munda


In addition to the queries raised in our email dated 13 January 2020 which we understand you have relayed to Aqua Munda, some P&P ISC members have further queries on Aqua Munda: “We understand that P&Ps are not being offered by the current deal by Aqua Munda. We also understand that Aqua Munda has said that it will make a proposal to the P&Ps at a later stage. What is the proposal to the P&Ps? Why can’t it disclose the proposal to P&Ps upfront, together with the proposal to the senior unsecured creditors? Such lack of transparency causes great concerns!” “Who is behind Aqua Munda? Does it has sufficient funds to see through a deal that addresses the various classes of creditors? What is its plan for Hyflux moving forward?”



We would be grateful if Hyflux could relay the queries above to Aqua Munda as soon as possible, and let us have their response on the same.

In addition, we would be grateful for Hyflux’s comments and confirmation on the following points: A P&P ISC member has asked if “the board of directors of Hyflux, its legal and financial advisers have an interest in Aqua Munda”. We would be grateful if Hyflux could confirm this point as soon as possible. In an announcement dated 18 January 2020 (“18 January Announcement”), Aqua Munda stated that it will be committing S$208 million for (a) the purchase of Eligible Debts (as defined in the 18 January Announcement; and (b) to contribute to the working capital requirements of Hyflux. In a subsequent announcement dated 28 February 2020 (“28 February Announcement”), Aqua Munda stated that it is also prepared to discuss the provision of a working capital facility of up to S$100 million to Hyflux in respect of a pipeline of projects to be undertaken jointly with Aqua Munda in the Gulf Cooperation Council countries, North Africa and Southeast Asia. Please let us know if Hyflux has: ascertained the purpose of Aqua Munda’s acquisition of S$208 million of Eligible Debt, including but not limited to, whether Aqua Munda intends to negotiate directly with Utico for a better deal for itself or whether Aqua Munda intends to eventually purchase all the debt of Hyflux and take control of Hyflux; discussed the profile and nature of the projects in the Gulf Cooperation Council countries, North Africa and Southeast Asia referred to by Aqua Munda in the 28 February Announcement, and the nature of the collaboration; discussed with Aqua Munda on the provision of a working capital facility for projects to be undertaken jointly with Aqua Munda; and conducted due diligence on Aqua Munda and is satisfied with, among other things, Aqua Munda’s proof of funds.



	Engagement with P&P holders


In light of the concerns and queries raised by the P&P holders, SIAS would like to invite Hyflux to organise a townhall with the P&P holders to engage them in a more direct setting. This would give Hyflux an opportunity to better understand and respond to the concerns and queries of the P&P holders.

SIAS proposes a Hyflux townhall be convened between 11 and 17 March 2020. Thereafter, SIAS and the SIAS Advisors will hold small group meetings with the P&P holders to continue discussion with them on the proposed scheme.

In light of the tight timelines leading up to the submission of proxy forms and the scheme meeting itself, we would be grateful if Hyflux would urgently confirm that it agrees to convene a townhall with the P&P holders between 11 and 17 March 2020 and that Hyflux will be responsible for all costs incurred in connection with organising the townhall.

C. SIAS Advisors Fees


We refer to: the pre-trial conference held on 5 February 2020 before the Honourable Justice Aedit Abdullah (“Judge”); and the hearing of Hyflux’s application to convene a scheme meeting held on 20 February 2020 before the Judge.


We understand that the learned Judge asked Hyflux to consider if protection for the provision of advice by the SIAS Advisors (i.e., PricewaterhouseCoopers Advisory Services Pte Ltd, Drew & Napier LLC, Akin Gump Strauss Hauer & Feld, BlackOak LLC and FTI Consulting) can and should be put in place by the creation of an escrow account as a condition for any Order of Court. We further understand that the Judge’s comments were made against the backdrop that the SIAS Advisors have no backstop and would be unable to look to SIAS or the individual P&P holders for their fees in the event that the Utico deal falls through.

We echo the Judge’s concern and strongly recommend that Hyflux establishes an escrow account to set aside funds for the SIAS Advisors’ fees. In this regard, SIAS proposes that an amount of S$1.5 million be placed in the escrow account. Please confirm that Hyflux will set up the escrow account as requested.

SIAS also refers to an article published in the Business Times titled “Hyflux lawyers WongP to discharge itself, cites confidence loss” dated 30 January 2020, where SIAS was quoted as stating that its advisors have been fairly and adequately remunerated and that there is assurance in place for them to be paid moving forward. SIAS wishes to make clear that neither the outstanding fees of the SIAS Advisors have been fully paid nor are they assured of their fees moving forward as there is no guarantee that the Utico deal will successfully complete. Further, insofar as Utico has proposed raising the pool for advisors’ fees from S$40 million to S$50 million if all the advisors, including the SIAS Advisors, support the Utico deal, the SIAS Advisors are unable to accept such a proposition. The SIAS Advisors have unequivocally informed us that regardless of whether they are current on their fees and whether they are assured of their fees, they will act independently in assisting us to engage with the P&P holders who will decide for themselves whether or not to accept the Utico deal, and will not under any circumstances accept higher fees in exchange for encouraging the P&P holders to accept the Utico deal. We share the SIAS Advisors’ view and will similarly not entertain any proposal on fees which could undermine the independence of the SIAS Advisors.

In light of the foregoing, we strongly urge Hyflux to place S$1.5 million in an escrow account in favour of the SIAS Advisors forthwith.

D: Longview International Holdings (“Longview”)


SIAS notes the recent express of interest from Longview and its joint venture partner from China to invest in Hyflux and that Longview and its Chinese counterpart have commenced due diligence on Hyflux.

Please let us know whether there have been any developments on this including whether they have issued a term sheet or letter of interest setting out the terms of their potential investment. Please also let us know whether any of the directors or advisors of Hyflux are related to Longview or its Chinese counterpart.

We look forward to your response.

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