Date: March 12, 2020
Since the signing of restructuring agreement (RA) of Hyflux with Utico, many retail preference and preferential (P&P) holders have approached SIAS for clarification on the proposed scheme for P&P holders. To this extent, SIAS and it’s advisors, Drew & Napier (D&N) and PricewaterhouseCoopers Advisory Services Pte Ltd (PwC) have undertaken the proactive step to clarify areas of concern to P&P holders ahead of the proposed scheme meeting. The areas of clarification include updates on the latest terms of the scheme proposed, responses from Hyflux and Utico on queries raised by SIAS. The details of the clarifications which are appended below include feedback that were received by SIAS and its advisors from the Informal Steering Committee (ISC).
Further, recent attention regarding SIAS Advisors’ fees has highlighted the issue that SIAS Advisors have no back stop. SIAS echoes the Court’s concern and strongly calls for an establishment of an escrow account to set aside funds for the SIAS Advisors’ fees. Having advisors engaged by SIAS throughout the restructuring process is absolutely necessary to, among other things, assist SIAS in its engagement with the P&P holders, and would also help to progress the restructuring.
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. This statement is incorrect. SIAS wishes to make clear that it now understands 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. It is left to the retail investors to decide. 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, neither SIAS nor its Advisors will accept such a proposition. The SIAS Advisors, specifically D&N and PwC, have unequivocally informed SIAS that regardless of whether they are current on their fees, and whether they are assured of their fees, they have and will continue to act independently in assisting SIAS 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.
Moving forward, whilst Hyflux finalises the circular for the scheme meetings, SIAS would like to reassure P&P holders that SIAS will be preparing to conduct its own independent townhall engagement sessions with retail P&P holders to understand the scheme so as to help them make an informed decision when casting their vote. Details on the upcoming sessions which will commence from 23 Mar 2020 will be announced shortly.
David Gerald
Founder, President and CEO
Securities Investors Association (Singapore)
Addendum to Press Statement:
A: UPDATE ON THE LATEST TERMS OF THE SCHEME PROPOSED BY HYFLUX
Holders of the Perpetual Securities and Preference Shares (“P&P Holders”) can choose between one of two mutually exclusive options:
(a) Option 1 (upfront payout option): P&P Holders who choose Option 1 will receive the lower of (i) S$1,500 and (ii) 50% of the aggregate value of Perpetual Securities and Preference Shares (“P&Ps”) held. Once payment of Option 1 monies is made, there shall be no further entitlement under the scheme for P&P Holders who choose Option 1.
(b) Option 2 (deferred payout option): P&P Holders who choose Option 2 will receive payment in five equal instalments over two years as follows:
(i) 20% shortly after the restructuring becomes effective;
(ii) 20% approximately 6 months after the restructuring becomes effective;
(iii) 20% approximately 1 year after the restructuring becomes effective;
(iv) 20% approximately 18 months after the restructuring becomes effective; and
(v) 20% approximately 2 years after the restructuring becomes effective.
Simple interest at the rate of 1.25% per annum will accrue on deferred monies payable under Option 2.
The total amount payable under Option 1 and Option 2 referred to above is capped at $50 million.
In addition, P&P Holders who choose Option 2 will receive a further sum (the “Further Sum”) of the higher of:
(i) S$50 million; and
(ii) in the event that shares of Utico (or relevant affiliate or subsidiary) is listed within 2 years after the restructuring becomes effective, cash equivalent of 4% of the entire issued share capital of that listed entity will also be set aside for P&P Holders who choose Option 2.
The Further Sum will be reduced based on the percentage of P&P Holders who choose Option 1.
The Further Sum will only be paid in the 3rd and 4th years after the restructuring becomes effective in five equal instalments as follows:
(i) 20% 2 years after the restructuring becomes effective;
(ii) 20% 30 months after the restructuring becomes effective;
(iii) 20% 3 years after the restructuring becomes effective;
(iv) 20% 42 months after the restructuring becomes effective; and
(v) 20% 4 years after the restructuring becomes effective.
Simple interest at the rate of 1.25% per annum will accrue on monies payable as the Further Sum.
Please note that the summary set out above is a brief outline of the key terms offered of the scheme proposed by Hyflux only, and is not intended to be exhaustive of all of the terms and conditions contained in the scheme. SIAS accepts no liability whatsoever, whether direct or indirectly, arising out of and/or in connection with any reliance on the brief outline set out above.
B: UPDATE ON RESPONSES RECEIVED FROM HYFLUX AND UTICO ON QUERIES RAISED BY SIAS
SIAS refers to its press statement dated 4 February 2020 (the “4 February Press Statement”) which sets out a list of questions for Utico from statements made by Utico at the town hall session for the P&P Holders held on 20 January 2020 (“Utico Townhall”). In addition to the 4 February Press Statement, SIAS has also followed up further with Utico and Hyflux on issues concerning the P&P Holders.
A summary of the queries raised by SIAS, and the responses received from Utico and Hyflux is set out below:
(a) Quantum of the Further Sum. At the focus group meeting held on 1 August 2019, Utico represented to the P&P Holders that the Further Sum under Option 2 would be at least $50 million. However, in the draft scheme document and explanatory statement, the Further Sum would be less than S$50 million unless all P&P Holders choose Option 2. In particular, the Further Sum would vary based on the percentage in value of the P&P Holders choosing Option 1 instead. SIAS sought clarification on why the Further Sum under Option 2 was reduced at such a late stage.
Hyflux’s response: “Although the Company and its advisors did their best to negotiate the best possible terms for the P&Ps, the terms offered to the P&Ps (as referred to in your said letter) pursuant to the restructuring agreement (the “RA”) were ultimately determined by Utico. These were commercial negotiations conducted on an arms-length basis and the Company firmly believes that it has done its best to obtain the best possible deal for the P&Ps given the circumstances.”
SIAS comment: The effect of the change is that the Further Sum will be less than S$50 million unless all P&P Holders elect Option 2. SIAS has expressed its disappointment at the last minute change to the Utico deal which is not in the interests of P&P Holders. Despite SIAS’ objections, the change to the Utico deal was a commercial decision agreed upon between Utico and Hyflux.
(b) Utico’s credit-worthiness. Whether Hyflux and Utico could provide assurances to the P&P Holders as to Utico’s ability to pay its deferred payment obligations to P&P Holders choosing Option 2. This is particularly important given the long time frame within which such payments are to be made. In this regard, SIAS notes that Utico had shared snippets of its financial information with the P&P Holders, but more information is required. SIAS has also asked for Utico’s financial information on multiple occasions but Utico declined SIAS’ requests.
Hyflux’s response: “The Company has noted the P&Ps’ concerns over Utico’s ability to meet their financial obligations under the proposed scheme. We believe that these questions should be addressed by Utico. To that end, we have instructed our legal advisors to reach out to Utico’s legal advisors, White & Case, to obtain further financial information on the Utico entities. The P&Ps may also wish to raise their concerns, including those relating to Utico’s ability to meet future financial obligations, with their advisors. The P&P’s advisors are in the best position to advise the P&Ps having regard to their best interests.”
SIAS comment: SIAS has to-date not received any financial information on Utico. Given the importance of having transparency on Utico’s creditworthiness, SIAS has, and will continue, to 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 at the earliest opportunity.
(c) Directors’ Entitlements. Whether Ms Olivia Lum will be giving up her entitlement in her position as a P&P Holder for the benefit of the other P&P Holders under the Utico deal.
Utico’s response: “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.”
SIAS comment: SIAS has not received a response from Hyflux and/or its directors on whether they will be giving up their entitlements under the Utico deal in favour of the P&P Holders. SIAS has written to Hyflux to follow-up on this point.
(d) Voting by Directors. Whether the board of Hyflux (the “Board”), including Ms Olivia Lum, will be abstaining from voting on the Utico deal.
SIAS comment: Pending Hyflux’s response. SIAS has written to Hyflux to follow-up on this point.
(e) nTan’s fees. SIAS also conveyed the P&P Holders’ general concerns on nTan’s fees and if such fees were justified, taking into account whether nTan (1) brought in Utico; (2) negotiated with Utico for the deal; (3) helped the P&P Holders secure a better deal; (4) helped Hyflux reduce its debt; and (5) how nTan’s advisory fee of S$25m was arrived at.
Hyflux’s Response: “When the Company was faced with the threat by the Unsecured Working Group (“UWG”), which consists of some of our unsecured bank creditors, to place the Company in judicial management (“JM”), the Board appointed nTan Corporate Advisory Pte Ltd (“nTan”) to advise the Company to inter alia stave off the JM threat, secure an investor and restructure the Company. The Board negotiated and agreed the terms of engaging nTan on an arms’ length basis. Had the Company gone into JM, the P&Ps would almost certainly receive no returns as the proceeds from the sale of the Company’s assets would be inadequate to repay the senior unsecured creditors in full after paying the judicial managers’ and liquidators’ costs.
In addition to advising the Board in staving off the attempt by the UWG to place the Company into JM, nTan has also provided invaluable advice to the Board in navigating the difficult restructuring process and dealing with the myriad of complex conflicting issues and challenges faced by the Company and the Board.
nTan has also played a pivotal role in advising the Board in securing and navigating the negotiations with Utico to reach agreement on the RA.
The Board is therefore of the view that the fees paid to nTan were fully justified.
Subsequent to nTan’s appointment, Mr Nicky Tan of nTan filed an affidavit on 25 May 2019 (copy enclosed) to persuade the Court that the Company should not be placed in JM. At a court hearing on 29 May 2019, the Court granted the Company an extension of the moratorium and the Court has since granted the Company additional moratorium extensions. In the course of these moratorium extensions, the Company and Utico entered into a Restructuring Agreement, and Aqua Munda Pte. Ltd. has offered to purchase certain debts of the Company and its subsidiaries under moratorium. These developments have given the P&Ps the opportunity to receive a better return than the almost certainty of no return if the Company had gone into judicial management.”
(f) Interest rate. Confirmation of Utico’s statement at the Utico Townhall, that 1.5% interest per annum will be paid on the deferred amounts under Option 2.
Utico’s response: “the RA of 26th November has all details included for P&P which captures our offer to the P&P in toto.”
SIAS comment: The RA in Utico’s response refers to the RA. Based on the RA and the draft scheme document and explanatory statement, interest under Option 2 is 1.25%, and not 1.5% as was represented by Utico at the Utico Townhall.
(g) “Soft landing”. Confirmation of Utico’s statement at the Utico Townhall, that a “soft landing” will be provided for P&P Holders electing Option 2 in the event that the listing of Utico is delayed beyond two years.
Utico’s response: Utico will provide a “soft landing” to the P&P Holders choosing option 2 if the listing of Utico is delayed beyond 2 years. The provision of a “soft landing” “depends on how many chose option 1 or 2 for which SIAS and Hyflux must carry out a vote.” Utico “will provide all comfort required once [the voting on the scheme of arrangement proposed by Hyflux] is done.”
SIAS comment: Utico must state clearly what “soft landing” it intends to provide to the P&P Holders who elect Option 2 as soon as possible, and before the P&P Holders vote on the Utico deal, as this is an important commercial term.
(h) Confirmation of Utico’s statement at the Utico Townhall, that it is willing to include 3 – 4% of Hyflux Ltd to the P&P Holders who choose Option 2.
Utico’s response: “the RA of 26th November has all details included for P&P which captures our offer to the P&P in toto.”
SIAS comment: Pursuant to the RA and the draft scheme document, the Further Sum presently includes the cash equivalent of 4% of the entire issued share capital of Utico or the relevant affiliate or subsidiary (as the case may be) if such entity is listed within 2 years of the Completion Date.
However, pursuant to the RA and the draft scheme document, Option 2 does not presently include 3 – 4% of Hyflux Ltd. Unless Utico confirms its position in writing and amendments are made to the RA and the draft scheme document, P&P Holders would not be able to hold Utico to the representations which Utico made at the Utico Townhall to include the 3 – 4% of Hyflux Ltd to Option 2.
(i) Release of claims against Directors. Whether Hyflux’s directors will be released after the scheme is effective.
Utico’s Response: Utico does not intend to chase Hyflux directors for liability.
SIAS comment: SIAS has reflected feedback from the P&P Holders that there should be no release of claims against directors even if P&P Holders vote in favour of the scheme. SIAS has strongly urged Utico and Hyflux to reconsider their position and exclude any release of claims against directors as a term of the scheme.
(j) Procedural and Administrative Issues. SIAS has raised a number of queries regarding the entitlement which P&P Holders may stand to receive under both Options 1 and 2, including the following:
(i) Whether a P&P Holder who holds both perpetual securities and preference shares would be entitled to one or two separate payouts of up to $1,500 each;
(ii) Confirmation of Utico’s statement made at the Utico Townhall that if a P&P holder holds securities through more than one account, it will receive up to $1,500 per account. The implications of such a statement is that, for example, if a P&P holder holds securities through 3 different banks, that holder may stand to receive $4,500. Confirm whether this position is correct;
(iii) Where the securities are held indirectly through several layers of omnibus accounts, whether each omnibus account is only entitled to one payout of $1,500 for that account;
(iv) Where Hyflux is unable to determine the beneficial ownership of securities held in an omnibus account, whether the holder of that account would be treated as a single holder such that it would only be entitled to a payout of $1,500.
SIAS comment: SIAS is following up with both Utico and Hyflux on the aforementioned queries and will provide an update when it receives a response from Utico and Hyflux.
(k) Potential investor. SIAS notes the recent expression of interest from Longview International Holdings and its joint venture partner from China to invest in Hyflux. SIAS has asked Hyflux the following queries in respect of the potential investment by Longview:
(i) whether there has been any developments since Longview’s expression of interest sometime in or around mid-February 2020;
(ii) whether Longview has issued a term sheet or letter of interest setting out the terms of Longview’s potential investment; and
(iii) whether any of Hyflux’s directors or advisors are related to or have interests in Longview or its Chinese joint venture partner.
SIAS comment: SIAS is awaiting a response from Hyflux on the queries relating to Longview.
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