SINGAPORE: With Hyflux staring at the prospect of being left high and dry at one point in time, the confirmation of its restructuring deal with United Arab Emirates utility group Utico is a positive development, experts said.
But the long-awaited rescue plan brings mixed news for Hyflux’s massive group of retail investors as it appears to be more favourable to those with smaller investments, they added.
After months of negotiations, Hyflux on Tuesday (Nov 26) confirmed that it has entered into a S$400 million restructuring agreement with Utico, which is set to take a 95 per cent stake in the local firm.
Experts who have been watching the fallen water treatment giant’s debt restructuring drag out over the past 18 months generally agreed that the deal is a sign of progress.
“We think it is desirable simply (because) there is an investor who is willing to get involved and complete this complicated deal and there may be no other acceptable or better alternative,” said analysts from OCBC Credit Research.
Under the deal, S$250 million will be used to pay unsecured creditors, such as banks and retail medium-term noteholders, although details are scant as to how this will be distributed.
For retail holders of perpetual securities and preference shares (PNP), they are given two options. Depending on their choices, this massive group of 34,000 individual investors who are owed S$900 million in total, will be paid in the range of S$50 million to S$100 million.
The first option is to receive an upfront cash payment of up to 50 per cent of one’s investments, capped at S$1,500.
The second option also offers the same cash amount, but this will be paid out over two years with a yearly interest of 1.25 per cent. This option also comes with an extra cash payout that will be made on a “pro rata” basis.
According to the announcement, if shares of Utico or an affiliate are listed within two years of completing Hyflux’s restructuring, this extra cash payout will either be S$50 million or the cash equivalent of 4 per cent of the issued share capital at the listing price, whichever is higher. If such a listing does not occur within two years, it will be S$50 million.
Utico’s chief executive Richard Menezes said its offer for the PNP investors is “substantially more than” what Hyflux’s previous investor – Indonesian consortium SM Investments – had put on the table.
“We are quite sure that we have been more than fair,” he added in reply to CNA’s question during a conference call on Tuesday afternoon.
READ: From making waves to drowning in red ink: Hyflux, Tuaspring and how a business giant came undone
But experts like iFast Corp's senior fixed income analyst Ang Chung Yuh said the deal seems more favourable for PNP holders with smaller investments.
“For example if I invested S$4,000, I will be able to get back S$1,500 and that will be a recovery rate of about 38 per cent,” he explained. “Basically the smaller your investment, the higher your recovery rate will be.”
Echoing that, OCBC Credit Research analysts said: “The offer is uneven and favours small retail holders, while holders of larger amounts of preference shares and perpetual securities are relatively disadvantaged.
“Effectively, this deal makes a diverse group of creditors even more disperse,” they added.
As such, there might be resistance to the deal from PNP investors with large holdings, as well as the unsecured creditors if they have not been consulted on the restructuring deal, OCBC’s analysts said.
Retail PNP investor Violet Seow described the deal as “buying votes of small investors to secure the numbers to push through the scheme” and that it is unfair to those who invested bigger amounts.
“Those who have invested their life savings into Hyflux end up losing almost all their investment,” she told CNA. “To us, this is not a rescue. There is nothing for us to cheer.”
“NOT THE BEST DEAL”: SIAS
Asked for his take on the deal, Securities Investors Association of Singapore’s (SIAS) president David Gerald said an “ideal situation” is when retail PNP investors are “kept whole on the books” of Hyflux – a plan that he said in April was being worked out by the company.
“This is not the best deal, but this is the only deal on the table now,” he told CNA, while cautioning that retail investors will get back nothing in a liquidation scenario.
The companies have said they hope to convene meetings with creditors to approve the schemes of arrangement in February 2020.
SIAS is hoping to organise dialogue sessions before that to help investors better understand the deal.
Said Mr Gerald: “We will help investors make an informed decision by organising dialogue sessions where the company and the offeror can make their presentations, and for investors to ask questions and to see if Utico can or cannot revise its offer.”
Beyond the broad terms of the restructuring deal announced on Tuesday, experts said Hyflux and its Emirati white knight will need to tackle lingering questions moving forward.
For instance, analysts from OCBC Credit Research wanted to know the terms of the other bids that Hyflux has received.
“According to the management, they mentioned multiple interested parties so why did they choose (Utico’s) bid over others? Why did it take so long for this agreement to be announced? Was this deal done reluctantly and because there was no other alternative?”
Utico should also provide further information on its business and financial conditions, given that it has offered stakeholders with a deferred payment option.
“This would give creditors comfort of Utico’s influence on Hyflux’s business and ability to pay deferred components, either through Hyflux’s performance or additional Utico injection,” OCBC’s analysts told CNA.
For National University of Singapore’s (NUS) Associate Professor Lawrence Loh, the question that needs to be answered is how Hyflux and Utico will be working together in future to revitalise the water treatment firm.
Still, at least one retail investor is writing off his losses.
The 68-year-old retiree who invested S$25,000 into Hyflux’s perpetual securities wrote in to CNA: “For PNP investors, the present deal is no better than the one offered by SMI previously … I will be voting against the Hyflux-Utico scheme.”