Utico’s move to replace cash offer with stocks a ‘bombshell’ for Hyflux retail investors: SIAS
SINGAPORE: The proposal by United Arab Emirates utility firm Utico to replace all cash payments for Hyflux creditors with stocks of both companies is “considerably less favourable” and a “bombshell” for already-aggrieved retail investors, said the Securities Investors Association of Singapore (SIAS) on Thursday (May 28).
“This must come as a shock to P&Ps (perpetual and preference shareholders) who were expecting to recover 50 per cent of their initial investment in cash under the initial proposal,” said SIAS president David Gerald.
Noting that Utico has set a deadline of Jun 4 for this revised offer, the investor advocacy group said it wanted Hyflux to provide clarity “immediately” on what this means for the 34,000 mom-and-pop investors who have been left hanging amid repeated delays in the company’s high-profile restructuring.
UTICO WANTS CHANGE IN DEAL TERMS
Hyflux, which is under court protection to restructure a mounting debt pile of nearly S$3 billion, signed a S$400 million rescue pact with Utico in late November last year, after a drawn-out negotiation process.
But the deal, which is valid until May 26, 2020, continued to face hurdles ranging from disagreements over the payment of adviser fees to an unexpected change in Hyflux’s legal team.
Scheme meetings that were planned for April also had to be postponed due to the COVID-19 outbreak. Hyflux has since been granted with an extension of its debt moratorium until end-July.
READ: COVID-19: Hyflux gets green light from High Court to postpone scheme meetings, extend debt moratorium
With the six-month validity for the agreement expiring this week, Utico said on Tuesday that it wanted to change the terms of the rescue deal, citing a lack of support from an unsecured working group made up of seven banks and SIAS.
Utico also said that it had requested for Hyflux’s audited financial statements by Jan 27, but only received them on May 26.
For these reasons, said Utico, all cash considerations it had earlier offered would now be replaced with Utico and Hyflux stocks.
Senior unsecured creditors would instead receive 17 per cent of Utico and 12.5 per cent of Hyflux as payment, while P&P holders would get 5 per cent of Utico and 12.5 per cent of Hyflux. Advisers would be paid 5 per cent of Hyflux, said Utico’s chief executive Richard Menezes in a letter to Hyflux.
Once the scheme is passed, Utico at its sole discretion will engage with each party for a buyback of the shares on an “exclusive basis”, he added.
Under the earlier rescue deal, S$250 million in cash was to be paid to unsecured creditors such as banks and medium-term noteholders, while S$100 million was to be set aside for P&P holders.
Among other conditions, Utico noted that its new proposal was contingent on “immediate approval and action by Hyflux to transfer all project agreements and shareholding of Hyflux project companies in Algeria, Oman, which are to be transferred to Utico on board approval with no delay”.
“This will enable Utico to remedy, rectify and build the value of these assets, arrest the running penalties and stem the value leakage,” said Mr Menezes, adding that the company reserved the right to not extend the deal or its new offer beyond Jun 4 “if it sees no positive response from Hyflux and senior unsecured creditors within a reasonable time” from the publishing of its letter.
Hyflux, in a bourse filing on May 27, said it was considering the content of Utico’s letter and would make the appropriate announcements as and when there are any further material developments.
SIAS: BRING RESTRUCTURING TO EXPEDITIOUS END
Mr Gerald from SIAS on Thursday released a statement seeking clarification about the revised offer, such as the name of the Utico entity whose shares are to be issued to the P&P holders.
He also wanted to know if P&P holders would get to choose between an upfront option and a deferred option where shares would be issued over a period of time. If yes, what would the offer for each option entail and would security be provided for each distribution under the deferred option, he asked.
In the statement, SIAS also called on Hyflux to keep stakeholders “appraised of any material developments” in its negotiations with Utico and other potential investors.
“If there are any other investors which has expressed an interest in investing in Hyflux, SIAS would request that Hyflux provides a timely update to all its stakeholders and not keep its stakeholders in a state of uncertainty,” Mr Gerald said.
“Hyflux is still a listed company on SGX and it is the duty of the company and its directors to provide timely and transparent updates to its stakeholders, notwithstanding the challenges faced,” he added.
With the restructuring dragging on since May 2018 and still “nowhere near conclusion”, SIAS said it would “strongly” urge Hyflux to take all steps to “bring the restructuring to a satisfactory and expeditious end for all stakeholders”.
Apart from Utico, Hyflux has also been approached by two other potential investors.
One is a Singapore-based company called Longview International Holdings, which in February expressed interest in investing in Hyflux together with a joint venture partner from China. The other is Spain-based water management company FCC Aqualia, which sent a letter of interest to Hyflux in March.
A little-known investor called Aqua Munda also came up with an offer in December last year to purchase about S$1.8 billion worth of Hyflux’s debts, and has extended the deadline twice.
Hyflux has offered no updates on these other investors.