SINGAPORE: Despite recent disagreements, Hyflux’s potential white knight has not indicated that it would back out of a proposed investment in the embattled water treatment firm.
This means that the restructuring agreement between both parties “remains in force”, Hyflux said in an update released close to midnight on Tuesday (Mar 26).
As such, the company will proceed with the scheme meeting on Apr 5 and Apr 8, as well as the extraordinary general meeting on Apr 15, for all stakeholders to vote on its rescue plan.
NOTICES "STRENUOUSLY DISPUTED"
The latest statement laid bare several disagreements that have emerged between Hyflux and SM Investments – the consortium made up of Indonesian conglomerate Salim Group and energy giant Medco Group, that has offered Hyflux a S$530 million lifeline – in recent weeks.
Among them were two notices from SM Investments, which Hyflux said it “strenuously disputed”. The first referred to the default notice from Singapore’s national water agency PUB, while the second involved another notice served upon Hyflux that alleged defaults at a desalination plant in Algeria.
For both, SM Investments described the defaults as “prescribed occurrence” that gave it the right to terminate the deal. It also gave Hyflux two weeks to remedy both defaults.
Hyflux said on Tuesday it disagreed with these allegations as “no prescribed occurrence has arisen as of this date”. It added that it has refuted SM Investments in a written reply dated Mar 25.
In the case of Tuaspring, Hyflux said SM Investments relied on the PUB’s default notice and press release to “assert a prescribed occurrence”. The agency had said earlier this month that it will terminate the water purchase agreement (WPA) with Hyflux and take control of the desalination plan, if defaults are not resolved within the notice period.
“However, the PUB has not terminated the WPA. Any statement by the PUB that it will terminate the WPA if the defaults are not remedied within the stipulated cure period does not constitute a threat on the part of the company or Tuaspring to cease its business in the usual and ordinary course,” said Hyflux.
In addition, even if PUB were to terminate the WPA, it can only do so after the Apr 5 deadline and it will have to provide Tuaspring with a 30-day written notice. This means that the earliest date by which the WPA can be terminated is May 6, the company added.
“Thus, any cessation of Tuaspring’s business in relation to the WPA, which the company acknowledges would give rise to a prescribed occurrence under the restructuring agreement, can only take place after the long-stop date."
READ: PUB ready to take over desalination plant at zero dollars if Hyflux's Tuaspring does not resolve defaults
Tuesday’s update also revealed for the first time that SM Investments disagrees with the use of S$271 million from its proposed investment, as well as S$1 million from Hyflux’s existing funds, for the restructuring deal. It cited concerns over working capital requirements post-investment.
Hyflux rebutted that an agreement with the investor on the commercial terms of the overall cash and equity allocation were reached before the Feb 16 publication of the restructuring proposal.
The scheme presented to the Singapore High Court on Feb 21 was also based on the same terms, while subsequent tweaks to the scheme to give minority stakeholders higher recovery rates “do not vary these commercial terms”.
As such, it has since written to SM Investments on four occasions, with the most recent being Mar 25, to refute the “belated assertion”.
Hyflux said it reserves the right to lay claim to a S$38.9 million deposit, which has been placed into escrow, should SM Investments “seeks to wrongfully terminate” the rescue deal.
This, according to National University of Singapore’s (NUS) Associate Professor Lawrence Loh, shows that Hyflux has considered the worst case scenario of SMI’s termination, “which could potentially even be within days from now”.
The dispute over how “prescribed occurrence” is interpreted shows “no clear convergence between both parties”, while the revelation that Salim-Medco objects to the deal's commercial terms points to another simmering reason why the investor is having second thoughts.
“There are so many tell-tale signs that the Hyflux-SMI relationship is hitting a rock,” said Assoc Prof Loh.
SCHEME MEETINGS TO PROCEED, NO TOWN HALL
Still, the embattled water treatment firm stressed that the restructuring deal remains on the table even if it has not been able “to meaningfully engage” SM Investments.
Bringing up the call for updates from the Securities Investors Association Singapore (SIAS), it said: “The investor has not stated to the company that it will resile from the restructuring agreement and the company remains of the view that the investor is obliged to honour its commitment to invest under the restructuring agreement.
“While the recent developments in the reorganisation process inject a measure of uncertainty as to the investor’s intentions … the company has been and will continue to seek to engage the investor and other key stakeholders to facilitate completion under the restructuring agreement, and will provide timely updates."
An updated scheme document reflecting previously proposed tweaks to give holders of perpetual securities and preference shares future payouts if contingent claims were extinguished, was also released on Tuesday night alongside the statement.
Lastly, the company said it would not be holding the third round of town hall meeting with retail investors due to time constraints and “scheduling difficulties with the investor”.
Hyflux, whose restructuring journey has been marked by multiple twists and turns including an upcoming protest planned by investors this Saturday, will hold a do-or-die vote on Apr 5.
While the meeting timings for bank creditors, noteholders and retail perpetual securities and preference shareholders remain the same, the vote will now be held at the Vista Exchange Green, instead of the company’s office along Bendemeer Road.