SINGAPORE: After months of negotiations, beleaguered home-grown water treatment firm Hyflux confirmed on Tuesday (Nov 26) that it has entered into a S$400 million restructuring agreement with United Arab Emirates utility company Utico.
With the investment, Utico is set to acquire a 95 per cent stake in the local company.
Speaking to reporters in a conference call, Utico’s chief executive Richard Menezes said the goal is to complete the restructuring by the first quarter of 2020, and have Hyflux’s shares and securities listed on the Singapore Exchange (SGX) to resume trading by then.
Trading in all of Hyflux’s shares and securities have been suspended since the debt-laden firm filed for bankruptcy protection in May 2018.
Utico also plans to list on the SGX in two years, said Mr Menezes, though he stressed that Hyflux will remain as a separate company.
“Utico will list on its own,” he told reporters. “(Hyflux) will remain as an independent company and we are confident that if we can move this quickly, we can take the company back to the market in a smooth manner.”
During the conference call, Hyflux’s chief Olivia Lum was asked about her role in the company moving forward.
The entrepreneur, whose name has been synonymous with the firm she founded in 1989, would only say: “We just signed the restructuring agreement. We are going to have to really focus on completing this restructuring as soon as possible.
“The rest of the things, over the next few months, we will discuss [sic].”
DETAILS OF THE RESCUE DEAL
In the announcement on Tuesday, Hyflux said Utico will subscribe to 95 per cent of its enlarged issued share capital for S$300 million via private placements.
This includes 7 per cent of new shares that will be issued to independent placees, so as to take into account the free float requirements under SGX’s listing rules, the announcement said. Utico will identify these placees, which are expected to be institutional and high net worth investors, it added.
Meanwhile, Utico will also grant Hyflux a working capital line of up to S$100 million, subject to the terms and conditions of a working capital line agreement to be entered into between both parties.
Overall, the deal will see Utico take a larger stake in the local water treatment firm. In its original offer, Utico had said it would take an 88 per cent stake for S$400 million.
READ: From making waves to drowning in red ink: Hyflux, Tuaspring and how a business giant came undone
Under the proposed schemes of arrangements, S$250 million will be paid “pro rata” to the unsecured creditors, such as banks and holders of the company's contingent and trade debt.
For the 34,000 retail investors holding on to Hyflux’s preference shares and perpetual securities, they have two options.
Depending on their choices, these 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 payment in cash of up to 50 per cent of their holdings in these debt securities, capped at S$1,500.
The second option also involves a cash payment of up to 50 per cent of these investors’ holdings that is capped at S$1,500, but this will be paid in half-yearly intervals over a four-year period.
There will also be an additional cash amount that will be paid on a “pro rata” basis to those who opt for the second option.
According to the announcement, if shares of Utico or an affiliate are listed within two years of the deal’s completion date, this additional cash payout will be either 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, the amount will be S$50 million.
Asked by CNA if it thinks it can garner the support of retail investors, Mr Menezes said what Utico has offered 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.
The announcement noted that the amount set aside for retail investors, excluding the additional cash payout, will come from the working capital line.
The remaining balance of the investment amount and working capital line will be used for the working capital and business development needs of the Hyflux group, as well as the payment of professional advisers' fees based on terms agreed the parties, as well as the among others.
Further details will be set out in a circular that will be despatched to shareholders in due course, Hyflux’s announcement said.
The company will seek the court’s leave to convene creditors meetings to have these schemes of arrangement approved. This is planned for February 2020, Hyflux’s financial and legal advisers said during the conference call.
SECOND SHOT AT RESTRUCTURING
This is Hyflux’s second restructuring deal since embarking on its court-supervised debt restructuring journey more than a year ago.
Founded in 1989, Hyflux made a name for itself with its proprietary membrane technology and was regarded one of Singapore’s most successful business stories, before a heavy reliance on borrowing and a failed venture into power generation hurt its finances.
Over the past 18 months, it has been granted six moratorium extensions – with its latest giving it reprieve from creditors until Dec 2 – while it works on securing a rescue investor to meet nearly S$3 billion in liabilities.
It had reached a S$530 million deal with Indonesian consortium SM Investments last October, but that arrangement fell through in April.
Hyflux then began negotiations with other potential investors, including Utico.
"Utico was identified by the company through the new investor search process which was commenced following the earlier termination of the proposed investment by SM Investments," the announcement read.
Utico is a developer of water and power infrastructure in the Middle East region. It is also the largest full service private utility company in the UAE.
In an earlier statement to CNA, its spokesperson said: “We are happy to be a white knight to revive Hyflux and build it to a greater company than it was. We hope to have full cooperation and support from all stakeholders."
The Emirati firm added that it is looking to hold a press conference in Dubai in the coming weeks.
Commenting on the deal inked on Tuesday, National University of Singapore’s (NUS) Associate Professor Lawrence Loh said the increase in Utico’s stake is likely “compensatory in nature” after taking into account factors like asset depreciation.
“Coming to a resolution today is definitely a good significant development for all stakeholders, though it’s still a bit asymmetric in the sense that the payout for the holders of preference shares and perpetual securities, compared to the senior creditors, is still relatively lower,” he told CNA.
“On the other hand, something is better than nothing because if it doesn’t go through, (retail investors) will get nothing in a liquidation scenario.”
But even if the deal is approved by creditors, Hyflux still has a long road ahead, said Assoc Prof Loh.
“The more fundamental question is how to get Hyflux up and running again. How will Utico and Hyflux work together, what are their new business plans and what is Hyflux 2.0? The financing is just the means to an end, not an end in itself," he said.