SINGAPORE: Troubled water treatment firm Hyflux chalked up a net loss of S$1.1 billion for the nine months ended Sep 30, 2018, as it took a hefty S$916 million impairment on the carrying value of its largest asset along with other write-downs.
This is according to an affidavit dated Mar 1, which was made public over the weekend after the company submitted it to the Singapore court.
This is the first time that the ailing company has released any financial numbers since applying for a moratorium last May. After being granted with the debt reprieve, it managed to secure extensions from the Singapore Exchange twice on the reporting of its financials.
According to the just-released unaudited statement of financial position, the S$916 million impairment loss “relates predominantly to the impairment loss arising from the assessment of the carrying value of Tuaspring and the impairment of receivables for previously completed projects”.
The Tuaspring Integrated Water and Power Plant is Hyflux’s single largest asset and according to founder-CEO Olivia Lum, had a book value of about S$1.3 billion.
Hyflux said the latest valuation is based on a recent market study conducted by K4K Training & Advisory SL – the same consultant who did a similar market study two years ago.
“The view taken in this most recent market study is significantly different from that in 2016 due to the following reasons: the losses in the electricity market in the recent years and the projected lower spark spreads for the remaining concession period," it wrote.
COMPANY TO GET FURTHER VALUATION
While it has adopted the current valuation in the unaudited financials, the company added that it intends to commission a further valuation by a different valuer for the purposes of finalising its 2018 full-year financial results as the current valuation is “significantly lower” than that in 2016.
“As the carrying value is a reflection of the current depressed market, in the event that the Singapore power market recovers to provide generation companies with sufficient spark spread margins, the valuation might then be revised,” it said in explaining the basis of preparation for its latest financial position.
The steep impairment hit and losses for the nine months of FY2018 are not unexpected, said iFast Corp’s senior fixed income analyst Ang Chung Yuh, who added that Tuaspring likely accounted for a large chunk of the impairment loss.
READ: Hyflux’s Tuaspring plant: The ‘noose around the neck’ that needs to be sold, but can it be done?
“It really shouldn’t be a surprise based on reports of what we've seen on Tuaspring’s sale process,” he told Channel NewsAsia, referring to a Bloomberg report last October which said Sembcorp Industries was the only party that submitted a final bid for the Tuaspring project.
“The report also said that the bid was even below what can be paid off to Maybank,” added Mr Ang.
“In terms of the operating performance, that isn't a surprise either given that when a company enters court protection, it is announcing to the whole world that it’s in an insolvency status and it’ll be difficult for them to immediately get support from trade creditors and clients."
The affidavit also included pro-forma restructured financials, which were prepared for “illustrative purposes only” and “may not reflect the actual consolidated financial information of Hyflux Group after the restructuring”.
If the restructuring is given the green light by creditors, Hyflux’s net loss will be reduced to about S$407.5 million, while its pro-forma net tangible assets (NTA) would be S$815.3 million.
Taking into account an enlarged share base of almost 19 billion shares, NTA per share would be 4.2 Singapore cents.
But Mr Ang said creditors are likely also looking for “more meaningful” figures that can shed light on the company’s future prospects.
“For instance, based on current projects, what are the cash flow projections for the next two to three years? Is there going to be another liquidity crunch in the near term? Projections of future performance like these would be more meaningful for shareholders to assess whether to vote yes or no.”
READ: Hyflux lays out restructuring plan to revitalise business, but retail investors lament big losses
The vote on Hyflux’s do-or-die restructuring plan will take place on Apr 5 and 8.
Junior creditors holding on to perpetual securities and preference shares will bear the brunt. These investors with claims of S$900 million are allocated a cash payout of S$27 million and 10.26 per cent of the company’s shares post-restructuring, translating into a recovery rate of just 10.7 per cent.
The senior unsecured creditors, ranked higher up the priority list, will get back at least 24.6 per cent after being allocated S$232 million in cash and 27 per cent of shares.
This prospect of steep losses did not go down well among mom-and-pop investors – so much so that some have said they would rather see Hyflux liquidated.
Calling the allocations for retail investors “paltry and inequitable”, investor advocacy group SIAS submitted an alternative proposal to the Hyflux board last week seeking for a fairer deal.
Hyflux is set to meet its retail stakeholders for the third time during town hall meetings scheduled for Mar 13.