SINGAPORE: Embattled water treatment firm Hyflux is in advanced talks with at least two strategic investors and hopes to conclude them by November, its lawyers said during a status conference hearing in court on Monday (Oct 8).
The company is also concurrently working towards a mid-October deadline to sell its Tuaspring Integrated Water and Power Plant, its lawyers said.
Hyflux is racing against the clock to fulfil its obligations even as debts mount.
It was revealed at the status conference - which was part of the court’s requirement for granting the firm a six-month moratorium in June - that Hyflux has been unable to pay rent on two offices over the past month, according to lawyers acting on behalf of HSBC Institutional Trust Services, the trustee of Ascendas Real Estate Investment Trust.
Channel NewsAsia understands that the company is in discussions with its landlord over the recent rent arrears.
PROCEEDING TOWARDS OCT 15 DEADLINE
Hyflux, which first made its mark in water treatment and later ventured into power generation, unexpectedly announced a court-supervised reorganisation of its business in May, citing “prolonged weakness” in the local power market for the turnabout in its fortunes.
It later obtained an additional six-month moratorium on Jun 19.
Hyflux has been trying to divest Tuaspring, its single largest asset, to help repay creditors.
With liabilities of S$2.95 billion, the divestment of the combined desalination and power plant, which cost more than S$1 billion to build and marked Hyflux’s move into the electricity market, has been seen as key to resolving the company’s cash crunch.
The company has until Oct 15 to ink a binding deal with a successful bidder for Tuaspring, as part of an agreement with Maybank - Tuaspring’s only secured creditor.
On this, Hyflux’s lawyers from WongPartnership would only say that the company is “proceeding towards that deadline” and that “there could be other conversations with Maybank on the process itself”.
WongPartnership partner Manoj Sandrasegara was, however, tight-lipped on other details, citing confidentiality.
Mr Sandrasegara did elaborate more on potential strategic investors, saying that the company is “moving very quickly”.
While the company is in talks with several potential strategic investors, discussions with two investors are at an advanced stage.
“Hopefully, something can be said in November, which gives an indication of where this restructuring is going,” said Mr Sandrasegara, without revealing names.
He added that Hyflux has always been keen to rope in strategic investors, whose investments will be able to pave the way for negotiations with creditors on whether its debts can be paid in full or if there will be haircuts, as well as the terms of restructuring.
READ: Some disappointed, others keep calm: Hyflux shareholders meet company management for first time since crisis
During the status conference, Hyflux had to fend off criticism from some of its creditors – BNP Paribas, Mizuho Bank, KFW IPEX-Bank, Bangkok Bank and Standard Chartered which were represented by Tan Kok Quan Partnership – over a lack of information and updates about the reorganisation process.
WongPartnership lawyers refuted the criticism, saying it had uploaded a business review deck and other documents onto a so-called data room in September to provide more information.
“While (information) may appear slow to some, the company also has to prioritise things, such as the stabilisation of its business, the Tuaspring process underway, preparing data rooms for DIP (debtor-in-possession) financiers and getting the TuasOne and Qurayyat projects going,” said Mr Sandrasegara in court.
“The idea was that as the creditor groups formed themselves in bigger groups then we can start to liaise with the financial advisors to see what information we need and eventually when there is a deal, we can start to negotiate with these parties and the creditors at large.”
On that, the court ordered Hyflux to provide an interim update to creditors during a full-day hearing on Oct 31.
Judge Aedit Abdullah said that while much has been done in terms of engagement, several financial institutions felt that Hyflux did not provide sufficient information on the restructuring process.
"I encourage that there’s as much information sharing as possible without causing commercial difficulties and I would emphasise given that this is a long moratorium period, the company does it best to engage all creditors, noteholders, perpetual and preference shareholders."
Another court hearing is also scheduled for Nov 19 for Hyflux to present more updates on its reorganisation progress and its future direction before its moratorium expires in mid-December.
When asked by the judge where he sees Hyflux at the end of the moratorium, Mr Sandrasegara replied that the wish list would consist of the company executing a binding term sheet with a strategic investor, subject to a scheme of arrangement with creditors.
However, he added that it was possible a scheme would not be signed and sanctioned before the moratorium ended.
To that, the judge said it would be an “uphill task” for Hyflux to request an extension given that it had already been granted a six-month debt reprieve.
“It’s quite clear that some investors are getting skittish the way things are going so it will have to take quite a bit to convince me to give you another six months, especially if there is nothing concrete in terms of the proposal that can lead to a resolution,” said Judge Aedit Abdullah.
“If it comes to that, it may be a bit of an uphill task.”
STEPS TAKEN TO PROTECT STAKEHOLDER INTERESTS: OLIVIA LUM
In an affidavit released after the status conference, founder-CEO Olivia Lum said the company has pursued a myriad of efforts concurrently over the past three months to “ensure that the interests of its stakeholders are not compromised”.
These include liquidity support plans for ongoing projects, the divestment of existing assets, pursuing potential strategic investors or partners for all of Hyflux Group's business segments, and seeking rescue financing.
For the sale of the crucial Tuaspring plant, Ms Lum noted in the affidavit dated Oct 1 that there is now a “select number of pre-qualified parties” – names of potential investors that have been approved by the offtaker, namely the PUB, whose approval is required at each stage of the divestment process.
Following the execution of a non-disclosure undertaking, pre-qualified parties are permitted access to a limited set of approved confidential information.
As there is no guarantee that a pre-qualified party will proceed with a bid, Ms Lum said the company is exploring all options, which includes increasing the number of pre-qualified parties so as to “optimise competitive tension to improve the realisable value of Hyflux's interest in Tuaspring”.
Discussions with eight potential rescue financiers are also ongoing, according to the affidavit.
All eight parties have submitted non-binding expressions of interest and were on Aug 30 granted access to a virtual data room with information on the Hyflux Group.
Following that, a non-binding letter of intent would have to be provided to the Hyflux Group by Sep 28 with a further round of due diligence involving project-specific and other sensitive documents. A supplemental non-disclosure agreement is being negotiated for these documents in anticipation of this, said the affidavit.
Hyflux Group expects to receive binding term sheets from interested parties and enter into a final agreement subject to court approval this month.
Among other information revealed in the 92-page long affidavit, the beleaguered company will implement further cost-cutting and other austerity measures to reduce overheads from S$73 million to S$50 million.
Beyond that, it "would not be possible to retain core competencies and technical expertise”, Ms Lum wrote.