SINGAPORE: Beleaguered water treatment firm Hyflux told Channel NewsAsia that it stays committed to proposing a “fair” restructuring plan next month as its aggrieved mom-and-pop investors grow increasingly worried about how much money they can recover.
Anger and frustration among minority shareholders have been building up since the second round of town hall meetings on Jan 18, where the company provided little meaningful updates except for the mention of possible cash payments and debt-to-equity conversions. Even then, specific figures were not discussed.
This has got retail investors, who are at the bottom of the priority list, losing sleep over the possibility of huge losses – so much so that some have said they would rather see the company liquidated.
HYFLUX TAKEN CHEAP?
It announced a potential lifeline by October when SM Investments – a consortium made up of Indonesian conglomerate Salim Group and energy giant Medco Group – proposed a S$530 million investment in exchange for a 60 per cent stake.
Comprising of a S$400 million equity injection and a S$130 million shareholder's loan, this new pile of cash will go towards the “full and final” settlement of the company’s debts and working capital needs, said the company in a SGX filing.
However, Hyflux has a staggering debt of almost S$3 billion.
Of which, unsecured bank creditors are owed S$717 million, while unsecured contingent creditors and medium-term noteholders have claims of S$915 million and S$271 million, respectively. Another S$900 million is owed to holders of perpetual securities and preference shares.
A report put out by OCBC last October had noted a “significantly large cash gap”. “While new cash into Hyflux from the SM Investment deal is welcomed, this amount appears heavily conditional and is insufficient to pay out all the amounts owed to various stakeholders.”
Management retention shares may also be allotted to ensure continuity of the business, according to Hyflux’s SGX filing, which means there could be less than 40 per cent equity stake left for various stakeholders in the rescue plan.
Some retail investors have begun doing their own calculations and while these numbers remain speculative, the main concern is that there is simply not enough to go around.
“Less than S$400 million and 40 per cent equity to be split among so many creditor groups, how is that sufficient?” lamented a noteholder who said she has invested S$250,000.
“I’m prepared to forgo my interests. I just want my principal back but looking at this, I fear that we are all going to suffer massive haircuts.”
She, like some others, have been pinning on alternatives such as an extension in the maturity dates of the notes, but her hopes were dashed when that was met with a “no” from the chief executive of SM Investments during the latest town hall session.
“With just a few hundred million, they want to wipe out all of us to make the balance sheet clean and own Hyflux with assets intact. The company is being taken cheap. How is that a white knight?”
Another told Channel NewsAsia that many retail investors left the meetings feeling “disappointed and helpless”.
“It’s not a good deal,” said the investor who requested anonymity. “My own calculation is that I will get back very little (money). If it’s so little then I might as well see Hyflux liquidated.”
In a liquidation scenario, senior unsecured creditors, which include retail note holders, can expect returns of about 3.8 to 8.7 per cent. However, those holding on to perpetual securities and preference share will not be able to recover a single cent, according to presentation slides shown at the town hall session.
“CAREFUL ASSESSMENT” OF NEW INVESTOR
In response to Channel NewsAsia’s queries, a Hyflux spokesperson said there was a “careful assessment” of all options before the company decided to proceed with the offer from SM Investments.
The offers it received ranged from a total investment of S$400 million to S$600 million, with equity portions varying from S$250 million to S$530 million in exchange of equity stakes ranging from about 51 per cent to 86.4 per cent.
“When assessing the offers presented, Hyflux considered the conditions associated with each of the offers as well as other factors such as the ability to complete and to do so within a short period of time, given the current liquidity crunch.”
The company also needed a “strategic investor that offered synergies with its existing businesses”.
SM Investments was picked “in the best interests of the Hyflux group and its stakeholders”, added the spokesperson.
On investor worries about steep haircuts, Hyflux said it will not be commenting on any third party speculation for now.
“In relation to returns to the retail investors, the terms of the intended scheme of arrangement are still being finalised and the views expressed from the various stakeholder groups are taken into account in the ongoing negotiations,” it said in the emailed response.
“The company remains committed to proposing a scheme that is fair in all the circumstances and that is feasible so there is a strong platform for long-term growth and stability.”
MORE ANSWERS NEEDED
Hyflux has said that it will put forward the restructuring proposal by mid-February. According to the timetable presented at the recent town hall session, it will also file an application to the court to call for a scheme meeting.
After which, it will meet holders of its notes, perpetual securities, preference shares and ordinary shares again on Mar 13, before having all stakeholders vote on the scheme of arrangement in the last week of March.
To get stakeholders on board, Hyflux will need to be more forthcoming, said investment specialist S. Nallakarappan.
Apart from laying out the basis for the amount of cash and equity each creditor group will be allocated in the rescue deal, Hyflux needs to answer questions, among others, related to the bidding process it had for the divestment of its Tuaspring Integrated Water and Power Plant.
Hyflux on Oct 12 said that it was assessing a bid submitted by one of the two interested buyers that have been approved by relevant authorities. Bloomberg, citing unnamed sources, said Sembcorp Industries had put in the bid that was below the plant’s book value of S$1.3 billion.
But since receiving the offer from SM Investments, Hyflux has said it is no longer actively pursuing a voluntary sale of Tuaspring.
On that, Mr Nallakarappan asked: “Why did Hyflux not accept the bid? What was offered then and how far was it from book value? If it wasn’t too low, why are they now willing to sell Hyflux, together with Tuaspring, at S$530 million?”
Questions such as these were also raised during the recent town hall sessions, but were among those unanswered when the meetings were cut off promptly at the two-hour mark.
When asked, Hyflux’s spokesperson said: “Due to time constraint and the large volume of questions, Hyflux regrets that not every single question was addressed during the townhall,”
“We are working to compile the FAQ according to their respective topics to cover the queries our investors have, bearing in mind that there would be some queries that we are unable to provide answers to at this point in time as negotiations and discussions are still ongoing.”
The answers will be uploaded to the company’s website when ready, added the spokesperson without specifying a deadline.
“WILL WE BE HEARD?”
Representation is another gripe for retail investors who fear that their voices have not been heard.
Mr David Gerald, president of the Securities Investors Association (Singapore) (SIAS), said informal steering committees have since been formed for all investor groups.
Speaking to Channel NewsAsia after the town hall meeting for noteholders on Jan 18, he added that legal advisors from Akin Gump and Drew & Napier have been appointed to represent the steering committees for the noteholders, as well as perpetual security holders and preference shareholders.
But little is known about who is sitting in the steering committees and what has been done so far, noted investors that Channel NewsAsia spoke to.
Not wanting to be left high and dry, some mom-and-pop investors have turned to messaging app Telegram to form a community, which has grown to more than 700 people and saw active discussions over the past week.
Still, some wonder how much of a say they really have.
“No one (from the steering committee) has spoken to me,” said a noteholder who declined to reveal his name. “Will we be heard? Will we be sacrificed just so the company can go on?”
Until the restructuring plan is announced, it will remain sleepless nights for the retiree who said he had invested a significant amount from his life savings.
“This has been completely unexpected but apart from being very worried and angry at myself for the past few months, I don’t know what else I can do.”