SINGAPORE: Hyflux on Friday (Mar 8) said it would be making amendments to the terms of its restructuring plan to “balance the competing legal and commercial interests” of all parties involved, marking the latest twist of events in the embattled water treatment firm’s restructuring journey.
The announcement was in response to an alternative proposal submitted by the Securities Investors Association Singapore (SIAS) last week.
The investor advocacy group had urged the company to give its minority investors of preference shares and perpetual securities a fairer deal as the current restructuring plan “clearly favours” the senior unsecured creditors, such as banks and noteholders.
In particular, SIAS took issue with how the 24.6 per cent return rates for the senior unsecured creditors could increase if contingent liabilities, such as liquidated damages in a construction project, did not crystallise. This is because if that happens, 80 per cent of the contingent claim’s restructuring entitlement, which will be kept in escrow, will be distributed to the banks and noteholders.
On the other hand, junior creditors would see their recovery rates unchanged at 10.7 per cent, which SIAS described as "paltry".
In its reply to SIAS president David Gerald, Hyflux said that it is proposing amendments to the scheme of arrangement to allow the junior creditor group to "share ... the upside from contingent liabilities extinguishing or expiring".
The amendments will see a reduction in the management payouts of the first contingent claim and the second contingent claim to 10 per cent, from 20 per cent.
“This means that when contingent claims under the scheme extinguish over the next two years, 10 per cent of the cash allocated to those extinguished contingent claims will be distributed by Hyflux to the project staff responsible for the extinguishment of those contingent claims.”
No member of the present Hyflux board or senior management will receive any part of these management payouts, the company said in its letter.
The remaining 90 per cent will go to the holders of perpetual securities and preference shares, as well as the unsecured scheme parties.
Perpetual securities and preference shareholders, referred to as debt securities scheme parties in Friday's reply, will also receive a “pro rata share” of the second unsecured claim cash payout.
"This means that when contingent claims under the scheme extinguish over the next two years, 90 per cent, up from 80 per cent, of the cash allocated to those extinguished contingent claims will be distributed among both the debt securities scheme parties and the unsecured scheme parties."
These investors will also receive a “pro rata share” of the final unsecured claim cash payout.
When all remaining contingent claims expire at the end of a two-year period, the money to be paid out will be distributed among both the junior and unsecured creditors, rather than just being distributed among the latter, the company said.
“The amount to be distributed to each debt securities scheme parties and the unsecured scheme parties will be in proportion to their respective accepted scheme claims."
READ: Hyflux lays out restructuring plan to revitalise business, but retail investors lament big losses
Hyflux added that the S$230 million claim by Mitsubishi Heavy Industries and related companies will not be part of the scheme. Neither will the company be regarded as a scheme party.
The company said: “The Hyflux scheme sought to balance the competing legal and commercial interests of all the scheme parties and we hope that the amendments proposed serve to better achieve this.”
Mr Gerald from SIAS described the move from Hyflux as a “positive concession".
While it is still unclear how much this would translate into for retail investors, he told Channel NewsAsia: “We’ve been looking within the scheme to see what is there for the investors of perpetual securities and preference shares. We are asking for everybody to be more fair, and now we got a little bit more for these PNPs."
This marks Hyflux's latest move to woo its minority stakeholders - some of whom have been so disgruntled with the restructuring terms that they said they would rather vote "no" and see the company liquidated.
It has been an eventful week for the company. Its latest unaudited financial accounts released on Mar 2 showed the company chalked up a net loss of S$1.1 billion for the first nine months of 2018, after taking a hefty S$916 million impairment on the carrying value of its largest asset along with other write-downs.
On Tuesday, its subsidiary Tuaspring Pte Ltd was served with a default notice from PUB for not fulfilling various contractual obligations, such as keeping Singapore’s largest desalination plant “reliably operational”, under a 25-year water purchase agreement.
The national water agency also warned that it would exercise its right to take control of the plant if the company's defaults are not resolved.
Analysts told Channel NewsAsia that the notice of default is "a complication" for an already-challenging restructuring journey for Hyflux.
Earlier on Friday, Hyflux said it had received proofs of claims worth S$3.5 billion from 73 parties, including from banks, landlords and retail investors.
Hyflux's scheme meeting, where creditors will vote on its restructuring plan, will take place on Apr 5.