Embattled Hyflux scraps agreement with would-be white knight Indonesian SM Investments

Hyflux said that it had no confidence that the investor is prepared to continue to complete the proposed SMI Investment, even if all outstanding conditions precedent under the Restructuring Agreement are fulfilled

Photo: YouTube screengrab

Singapore—In the latest development in the Hyflux saga, the company announced that it was scrapping a restructuring agreement with would-be white knight on Thursday, April 4. The water treatment company said they have “no confidence” that the deal with Salim-Medco consortium SM Investments (SMI) will push through.

Last year, SMI had agreed to invest S$530 million (US$391 million) into Hyflux in exchange for a majority stake in the company, which has debts amounting to S$ 2.7 billion (US $2 billion). The cash infusion from SMI was crucial to Hyflux’s survival.

This has made the situation for the beleaguered water company even more difficult.

Hyflux claimed that it had tried “on multiple occasions to meaningfully engage with SMI on its assertions on the restructuring agreement,” its attempts had no success.

Hyflux added, “In light of (SMI’s) responses and conduct, Hyflux has no confidence that the investor is prepared to continue to complete the proposed SMI Investment, even if all outstanding conditions precedent under the Restructuring Agreement are fulfilled.”

A week ago, SMI announced that it was reviewing the funds it was allocating for the water treatment company’s working capital expenses and for setting claims from creditors, given “new material information” about Hyflux.

While SMI shed no further light on what this information is, the company announced that it “significantly increases” Hyflux’s working capital requirements.

Meetings set for today, April 5; Monday, April 8, and April 15’s Extraordinary General meeting have now been cancelled in connection to these latest developments.

For its part, SMI claims it was surprised by Hyflux’s announcement. In a statement, the consortium of Indonesian businessmen said it was “surprised by the action taken by HyfluxSMI has been waiting for Hyflux to disclose further material information following multiple requests for such disclosure.

The delay in disclosing this material information has prevented SMI from determining a workable allocation between working capital and the settlement amount to creditors under the Restructuring Agreement.

As noted previously, SMI has already issued Hyflux two notices to remedy threats to the Tuaspring and Magtaa projects on March 18 and 25, 2019 respectively. These threats have not been remedied. (On Wednesday), SMI was informed of a threat to a third major project.”

The Indonesian company further claimed to have followed the agreed-upon restructuring plan and is now seeking legal counsel regarding the matter.

As it stands, the fate of the 34,000 retail investors remains even more uncertain. These investors could lose up almost all of their investments into Hyflux, which had once promised a 6 percent annual return, and which had also seemingly enjoyed an endorsement from the government. Around 400-500 of these investors attended the protest held last Saturday, March 30.

The company has asked for senior creditors to take a 75 percent cut on their investments, while retail investors were asked to take a 90 percent cut.

Hyflux had given SMI a deadline on 12 noon on Thursday to confirm if the Indonesian consortium would push through with the investment but did not get a clear answer from SMI, according to South China Morning Post (SCMP).

SCMP also reports the company as saying, “Barring a new investor emerging before the court moratorium ends on April 30, we think the likelihood of a liquidation has increased.

The restructuring agreement is therefore terminated and the company intends to take all necessary action in connection with such termination.”

Earlier this week, the Singaporean Government announced that it would not provide a bailout for Hyflux’s investors. In Parliament on Monday, April 1, Environment and Water Resources Minister Masagos Zulkifli announced that taxpayers’ money cannot be used to make up for the losses of beleaguered water treatment company Hyflux. In other words, there will be no Government bailout for the debt-ridden firm or its subsidiary Tuaspring Pte Ltd (TPL).

Mr Masagos said that the Government is aware of the plight of Hyflux’s retail investors, however, it “cannot use taxpayers’ money to help investors recoup their investment losses,” though it is “saddened by their plight”.

The Environment and Water Resources Minister also noted that as Tuaspring’s only secured creditor, Maybank will be receiving payments ahead of all of the company’s other creditors, even PUB, Singapore’s water agency.-TISG

Read related: No Government bailout for Hyflux investors—Masagos Zulkifli

No Government bailout for Hyflux investors—Masagos Zulkifli