Hyflux's moratorium extended by 5 days to May 29; two new restructuring plans in the works

SINGAPORE (May 7): The Singapore High Court on Tuesday rejected the petition by a group of seven unsecured banks to be excused from a debt moratorium so that they can file an application to have Hyflux and Hydrochem placed under judicial management

The High Court also granted Hyflux a five-day extension of the moratorium originally set to end on May 24.

Meantime, it would just have to file an affidavit by May 24 to provide an update on the restructuring process.

Hyflux's moratorium staves off creditors until May 29, so any creditor that wants to apply for a JM to be brought in before then must first get the court's approval for the opt out.

When it appears before the court on May 29, Hyflux will also able to apply for a further extension to the court-sanctioned protection from creditors.

Analysts say Hyflux is expected to apply to extend its moratorium by a few more months at the next court hearing held on May 29.

The seven banks – Mizuho Bank, KfW IPEX-Bank, Bangkok Bank, BNP Paribas, CTBC Bank, The Korea Development Bank and the Korea Development Bank, Singapore Branch – are owed a total of $648.7 million by Hyflux.

Hyflux is in a race to find a new investor following the inability of Hyflux and Salim-Medco Investments to complete an earlier restructuring agreement.

On May 3, Hyflux announced it had received a non-binding letter of intent from Utico FZC, a Middle Eastern investor, for a possible injection of $400 million.

According to Hyflux’s announcement, Utico is based in the UAE, has a reputable track record in the water and power industries, and its shareholders include sovereign institutions of the governments of Oman, Saudi Arabia, Bahrain and Brunei.

Utico is also aware that Tuaspring Integrated Water and Power Plant is no longer part of Hyflux’s assets as the Public Utilities Board is likely to take control of Tuas Desalination Plant.

On Apr 23, Hyflux received a letter from Malayan Banking for immediate payment of $509.11 million and US$44.53 million ($60.7 million) for a term loan and cash cover for contingent liabilities respectively for Tuaspring power plant. As a result, Maybank – for which Tuaspring is security for a non-recourse loan ­­– has the intention to take control of Tuaspring power plant.

At any rate, Tuaspring IWPP was performing sub-optimally because Hyflux did not have sufficient cash flow for new membranes and the power plant was making a loss.

The affidavit says that with the termination of the SMI agreement, Hyflux will be able to pursue alternative structures to dispose of some assets and reduce liquidity pressures as well as restructure the EPC business. Although Hyflux has experience with EPC water plants, the affidavit points out that the EPC business is “plagued with liquidity issues and needs to be restructured in order to perform to its full potential”.

New restructuring plans

Hyflux’s Apr 23 affidavit also describes two new restructuring plans, Plan A which takes into account an investor such as Utico who comes in with $400 million; and Plan B which assumes no immediate investor.

Under Plan A, the new investor and the original Hyflux will together own a new company called New Hyflux. If the new investor is Utico, $300 million out of $400 million will be used to discharge the senior unsecured debt, including medium-term noteholders, trade creditors and contingent liabilities. The remaining $100 million would be used for working capital. This plan is likely to be subject to at least a couple of scheme meetings.

Under the SMI rescue plan announced in Feb, various approvals from scheme meetings were required, including senior unsecured creditor parties comprising of banks, noteholders and trade creditors. The noteholders’ total claims alone are $278 million; total claims by unsecured creditors most of which are the banks amount to $1.672 billion. A big portion are contingent liabilities. All these senior unsecured creditors have shared $232 million. Under the SMI restructure plan, noteholders would have received $107.63 worth of Hyflux shares and $138.72 in cash, totalling $246.35. In other words, noteholders would have got back 24.6 cents for every dollar invested.

Under Plan A, the noteholders continue to be owed $278 million, the bank creditors have a claim of $714 million, and potential contingent creditors amount to $724 million. The good news is that if all the contingent liabilities do not crystallise, the total claims can be reduced to $1 billion, and $300 million of cash infusion will amount to 30 cents in the dollar versus the original 24.6 cents..

PnP not part of scheme

The bad news is, under Plan A, the 34,000 preference share and perpetual security holders – the so-called PnP - who are owed $900 million are not subject to scheme meetings and they don’t get to share in the $300 million pile of cash. The PnP will only receive dividends once the company starts operations again and if it is profitable.

Under Plan B however, the restructured EPC and other operating businesses will continue to be held under the new Hyflux, and the new Hyflux shares will be pledged to the senior unsecured creditors. As and when assets or projects are divested, the proceeds can be distributed to the scheme creditors (see Plan B’s flow chart). When a new investor emerges, it will directly own the restructured businesses.

The PnP will continue to own the old Hyflux, and if there is any profit that flows through the old Hyflux, they could receive dividends. In Plan B, PnP will not be voting in any scheme meeting, unlike the senior unsecured creditors.