Letter to Hyflux Board – SIAS Queries Hyflux Board for P&Ps

Date: January 13, 2020

Board of Directors
Hyflux Ltd
Hyflux Innovation Centre
80 Bendemeer Road
Singapore 339949

Dear Members of Hyflux Board,

SIAS Queries Hyflux Board for P&Ps

We have received a number of emails from members of the P&P ISC expressing their dissatisfaction with the Utico deal as currently proposed and the intention of a number of P&P holders holding substantial debt to vote against it should a scheme be proposed on the current terms.

After consulting our advisors, we have summarized the more pressing concerns of the P&P ISC members and would appreciate your responses to the same at your earliest convenience.

  1. With respect to Option 2 of the current proposed P&P deal, the message communicated by Utico to the P&P holders at the focus group meeting on 1 August 2019, was that the Additional Cash Amount (as defined in the term sheet) would be at least $50 million. Please clarify why the Additional Cash Amount will now be reduced based on the percentage in value of P&P holders, who would choose option 1 instead. That was not the deal proposed initially and there is no reason why there should be a change at this stage. This is of particular concern to P&Ps since the principal amount to be paid for Deferred P&P Initial Cash Amount (as defined in the term sheet) is capped at $50 million.
  2. There is deep concern about Utico’s ability to meet their financial obligations under the proposed scheme. This is especially so for P&P holders who may choose Option 2, as they feel that they may not be paid anything at all when the time comes for payment. This is more so since the time frame for payment will be as far as 4 years from the date of the Restructuring Effective Date (as defined in the term sheet).  As you may be aware, there is, to-date, very little financial information on Utico FZC (a non-Singapore based party) and Utico Singapore who are providing the guarantee / share pledge to the P&P holders who choose Option 2.  How can  these P&Ps be assured that the Deferred P&P Initial Cash Amount and the Additional Cash Amount will be paid?
  3. Based on the Utico deal currently proposed, there is no mention that 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. Olivia Lum was more than willing to give up such entitlement under the SMI deal. Therefore, there is no reason for her not to do the same now. She has always maintained that she wants to do the best for P&Ps. Please confirm whether Olivia Lum will be giving up her entitlement for the benefit of the other P&P holders under the Utico deal.
  4. 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.

With respect to the S$25m advisory fee that is payable to nTan, (which is well discussed in the social media) they say:  PnP investors are well aware of the S$25m advisory fee payable to nTan. This fee is considered huge by them when compare(d) to (the) allocated sum of S$50m for PnP, who invested combined sum of  S$900m. Without a full understanding of this fee, I am sure many PnP will not be very happy and could vote against the deal and prepared to write off. Let us understand the following:

(1) Did nTan bring in Ultico investor?

(2) Did he negotiate with Ultico for this deal?

(3) Did he help to negotiate or help PnP to secure a better deal?

(4) Did he help Hyfllux to reduce debt?

(5) How was this advisory fee arrived at S$25m?

Please help address our concerns..

The above questions reflect the concerns that a number of P&P Holders have expressed regarding nTan’s fees in the telegram chat. These P&P Holders may also turn to other social media, the press or the Court to ventilate their concerns further. It would therefore be helpful if we could be provided with the information on the questions asked to help address their concerns.

SIAS Advisor fees

Separately, SIAS is also concerned on the issue of advisors fees. As you are aware, Drew & Napier LLC and PriceWaterHouseCoopers Advisory Services Pte. Ltd. (collectively, the “P&P Advisors”) were appointed by SIAS to represent SIAS, which in turn represents the informal steering committee for the P&Ps, as its legal counsel and financial advisor. Similarly, Akin Gump Strauss Hauer & Feld, BlackOak LLC and FTI Consulting (“collectively, the “MTN Advisors” and together with the P&P Advisors, the “SIAS Advisors”) were appointed by SIAS to represent the informal steering committee for the holders of the notes.

The holders of the P&Ps, are a diverse group, and the P&P Advisors have had to spend a significant amount of time addressing their various concerns.  The SIAS Advisors should therefore be reimbursed for the work done.  In this regard, we note the Honourable Justice Aedit Abdullah’s comment that the SIAS Advisors should be given special treatment in relation to their fees since such advisors will not be able to seek payment from SIAS.

SIAS has been given to understand by Hyflux’s lawyers that they had informed the Court that a sum of $1.5 million had been set aside for the SIAS Advisors. Hyflux’s lawyers also confirmed at the stakeholders’ meeting held on 6 December 2019 that a sum of S$1.5 million was held on trust for the SIAS Advisors. However, by an email dated 31 December 2019 from Hyflux’s lawyers to the P&P Advisors,  were informed that “the Company had instructed nTan to set off the S$1.5m against the fees owing to nTan shortly after the Company’s advisors and the SIAS advisors were paid in October 2019.” Please clarify that the S$1.5m is still held in trust.

Moving forward, we expect the SIAS Advisors to incur significant costs on, among other things, working with the P&Ps / noteholders (as the case may be) to update them on the deal terms (and changes) and addressing any concerns they may have. You would appreciate that such communications with the P&Ps / noteholders are critical to providing the P&Ps and noteholders with the necessary information and context before voting on any scheme which is eventually proposed.

Aqua Munda

SIAS understands that while Hyflux is not party to the Aqua Munda deal, Hyflux will help relay any queries / requests from the creditors to Aqua Munda. In this regard, SIAS would be grateful if Hyflux could relay the following queries to Aqua Munda as soon as possible, and let SIAS have their response on the same:

  • In Aqua Manda’s press release dated 23 December 2019, Aqua Manda states that “[they] intend to engage with P&P Holders through SIAS and its advisors as soon as practicable after the close of the Invitation”. SIAS strongly encourages Aqua Munda to open any invitation to the P&P holders as soon as possible and before the scheme meeting is convened so that the P&P holders have a fair and reasonable opportunity to consider both Utico and Aqua Munda’s offers before making any informed decision.
  • Please let us have the identities of the principals behind Aqua Munda and, as requested in our press statement dated 30 December 2019, Aqua Manda’s intention with respect to the restructuring process as soon as possible.
  • Please let us know how Aqua Munda intends to fund the acquisition of the offer made to the senior creditors, and if an offer is made to the P&P holders, how Aqua Munda intends to fund the acquisition of any such offer made to the P&P holders.

SIAS understands that Hyflux may have assisted other senior creditors relay their queries / requests to Aqua Munda on issues concerning the identity of Aqua Munda’s principals and Aqua Munda’s creditworthiness. Similarly, SIAS would be grateful if Hyflux could relay the concerns and requests of the P&Ps to Aqua Munda and let us have their responses.

We look forward to your response.


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