SINGAPORE: As the crucial sale of its biggest water and power plant remains a work in progress, Hyflux being in advanced talks with at least two potential strategic investors has been described by some analysts as a welcomed update amid a closely-watched restructuring process.
The beleaguered water treatment firm, which shockingly announced a court-supervised reorganisation of its business in May and later obtained an additional six-month moratorium in June, said on Monday (Oct 8) that it is “moving very quickly” in terms of discussing possible new financing with strategic investors.
It is in advanced talks with at least two potential parties and hopes to conclude them by November, its legal advisors from WongPartnership told the court during a status conference.
Deals with strategic investors will help to determine if the company’s debts can be paid in full and pave the way for negotiations on the terms of restructuring with various creditor groups, the lawyers added.
After the seeming lack of progress over the past months, CMC Markets’ Singapore-based sales trader Oriano Lizza is viewing the update as “a positive” for now.
“Without information on who they are and their approach to investing in Hyflux, it’ll be difficult to give an assessment but what’s promising is the interest in Hyflux,” he said.
“But we haven’t heard much since the moratorium was granted … so this is a positive.”
iFast Corp’s senior fixed income analyst Ang Chung Yuh said it helps to shed some visibility on the restructuring process given the uncertainties that continue to cloud the divestment of Hyflux’s single largest asset, the Tuaspring Integrated Water and Power Plant.
“In that sense, getting rescue financing or strategic investments might play a bigger role in determining the eventual recovery for all stakeholders.”
SELLING TUASPRING: TOUGH BUT ESSENTIAL
Still, analysts said the sale of Tuaspring remains key as Hyflux races against time to fix a dwindling cash pile amid mounting debt.
Of its S$2.95 billion of liabilities, S$265 million is owed to medium-term note holders and another S$900 million to investors of perpetual securities and preference shares. The latter is a big group of 34,000 people, with many of them being retail investors.
Meanwhile, it was also revealed at the status conference that Hyflux has been unable to pay rent for its two office premises over the past month, according to lawyers for the trustee of Ascendas Real Estate Investment Trust.
With a book value of S$1.3 billion, the divestment of the Tuaspring plant at the right price will “loosen the noose” around Hyflux’s neck, said investment specialist S. Nallakaruppan.
“Strategic investors taking a stake may help with the turnaround but Hyflux’s debt is humongous. It needs to reduce its gearing and divesting of assets must be priority.”
But market watchers acknowledge that the process isn’t as straight-forward with the integrated plant being a strategic water asset in Singapore. Approval from the national water agency PUB is required “every step of the way”, founder-CEO Olivia Lum had said previously.
“This is not a transaction where you just have two private parties talking. In this case, there are gatekeepers involved,” said OCBC Bank’s credit analyst Ezien Hoo.
Still, given that it is nearly four months into the moratorium, Ms Hoo said expectations were for “more colour” to be unveiled during Monday’s status conference, such as the number of bidders, so that “investors can have some sense of whether they are getting zero or a bit more”.
“(Maybe) they are trying to get more bidders into the picture.”
The Tuaspring Integrated Water and Power Plant. (Photo: Hyflux)
As part of an agreement with Maybank, Tuaspring’s only secured creditor, Hyflux has until Oct 15 to sign a binding purchase agreement with a successful buyer for Tuaspring. Final bids had to be in by Oct 1.
Sembcorp Industries was reportedly the only party to submit a final bid, with the Bloomberg article adding that the bid was below Tuaspring’s book value and will not be enough to fully pay back loans.
At the status conference, WongPartnership lawyers would only say that Hyflux is “proceeding towards” the deadline and that “there could be other conversations with Maybank on the process itself”.
Meanwhile, in Ms Lum’s affidavit released after Monday’s hearing, it is written that there is now a “select number of pre-qualified parties” – names of potential investors that have been approved by PUB and permitted access to a limited set of confidential information.
As there is no guarantee that a pre-qualified party will proceed with a bid, Ms Lum said the firm is exploring all options, which includes increasing the number of pre-qualified parties so as to “optimise competitive tension to improve the realisable value of Hyflux’s interest in Tuaspring”.
NEED FOR UPDATES
With the next hearing scheduled for Oct 31, analysts are hoping to hear more details by then.
iFast’s Mr Ang, for one, wants to know the outcome of the plant’s valuation process conducted by the appointed valuers. “If it is below expectations, what will Hyflux do?”
He added: “Also, if the Oct 15 deadline is not met, will there be an extension? If there is one, is Maybank asking for more to protect its interests?”
Such updates will be necessary given that Hyflux will most likely request for an extended reprieve from creditors by the time its moratorium expires in mid-Dec, analysts told Channel NewsAsia.
“In the agreement with Maybank, for example, the timeline to get shareholder approval for the sale is in February – 2 months after the moratorium ends,” said Mr Ang. “So the company already has some expectations of getting an extension.”
“While restructuring processes tend to be protracted and Hyflux should be given space to discuss and get the best deals, it will probably still have to show some progress to get it,” he added.
On Monday, Justice Aedit Abdullah said it would be “an uphill task” for Hyflux to request for a moratorium extension without showing concrete progress on its restructuring plans.
