SINGAPORE: With Hyflux granted a six-month moratorium that will last until mid-December, founder-CEO Olivia Lum said on Thursday (Jul 19) the management is working hard to keep the company afloat to ensure fair treatment for all stakeholders, including retail investors.
In her first media appearance since the home-grown water treatment specialist filed for court protection in May, Ms Lum, who is also the executive chairman of Hyflux, said: “Within this year, my hope and my goal is to always look after the shareholders and other stakeholders (so that) we can be fair to everybody.”
Referring to the more than 50,000 holders of the company’s perpetual securities, preference shares and common equities – in which many of them are mom-and-pop investors – she said: “They put their trust in me, in the company, to be able to bring returns to them and now we got into this trouble.
“We still have to work our extreme utmost to ensure that the company stays viable and we want to work towards a viable scheme so that everybody will be treated fairly.”
Flanked by two members of her senior management team, two non-executive independent directors, as well as financial and legal advisors from Ernst & Young Solutions (EY) and Wong Partnership at a conference room in the company’s headquarters, Ms Lum also revealed that Hyflux is in touch with eight bidders for its Tuaspring Integrated Water and Power Plant and 19 interested parties for rescue financing.
Seen as one of Singapore’s most successful business stories, Hyflux made the unexpected move on May 22 to apply for a court-supervised process to reorganise its business and liabilities. The household name, which first made its mark in water treatment before venturing into the power market, cited “prolonged weakness” in the local power market for the turnabout in fortunes.
Trading in its SGX-listed shares and related securities has since been suspended, leaving tens of thousands of retail investors reeling. Some analysts and investors that Channel NewsAsia spoke to noted that this has come as a shock given how the management had “gave an impression that they can pull through this” in February when it held its annual results briefing.
When asked about this, Hyflux’s top executives reiterated that the move to seek court protection, while shocking, was a “proactive step” to preserve its assets and protect value for stakeholders.
Chief financial officer Lim Suat Wah revealed that the idea of seeking court protection was not on the table even when the company reported further losses for the first quarter in early May.
“In February, when we had our first year of operating loss, we started to see signs of electricity prices improving … hence in terms of signaling (of any issues), that didn’t come out in February,” she said. “In fact when we announced first-quarter results on May 5, there was no plan to file for any court protection.”
However, snowballing losses related to its single largest asset, Tuaspring, began to fuel concerns within its board. These were compounded by the lack of “serious bids” for the loss-making integrated plant that has been put up for sale since end-2016.
Concurrently, these losses have started to make some of the company’s lenders “more jittery” and become less supportive of its other ventures, said Ms Lum.
“The main trigger (for the moratorium) is really just the Tuaspring losses, which we have been transparent about for the last two years," explained Ms Lim, who is also the group executive vice president.
"In our business, given that it’s very capital intensive, we have always been in a process of divesting and investing so divesting Tuaspring is a key process to inject capital into our business," she added.
“On the board level, there was discussion about what if it took longer to sell Tuaspring? What if some projects that are under construction has any unexpected delay. What can management do to protect the company?"
8 BIDDERS FOR TUASPRING, 19 PARTIES FOR RESCUE FINANCING
Hyflux and four of its subsidiaries were granted a six-month reprieve from creditors by the High Court on Jun 19.
Another subsidiary, Tuaspring, reached an agreement with secured creditor Maybank on Jul 6, in which Hyflux had until Oct 15 to “execute a binding agreement” for the sale of the Tuaspring integrated water and power plant.
On the sale of this crucial asset, Hyflux said it is in touch with a total of eight bidders at the moment though it has not gotten any “real firm offer”.
On whether these bidders are local or foreign companies, its lawyers from WongPartnership would only say there is "a good mix”.
Commenting on the prolonged process to find a buyer for its interest in the plant, Ms Lum noted that with Tuaspring being a strategic water asset in Singapore, approval from national water agency PUB was necessary “every step of the way”.
“Every name that even come to the door, even before doing paper due diligence, it has to be approved first. This process, of course, takes a long time. Some of them are overseas companies so the water agency has to know their background and who they are before allowing them.”
Ms Lum also shed light on how Hyflux decided on the project despite not having prior experience in the energy sector.
Noting that there were more opportunities for integrated water and power plants than pure desalination plants in markets like Middle East, she said: “I have always been very ambitious. If I can gain some experience in IWPP in home ground, perhaps that would help to propel us into the region.”
“That’s why we wanted to try out in our (home market) first in the form of Tuaspring,” said Ms Lum, while adding that this was a decision that was “well supported” by the independent advisors and bankers.
“(It’s) not that Olivia Lum decides to enter a IWPP project and let’s do it. This is a S$1.1 billion project and one that’s not to be taken lightly. We entered into this project purely because independent analysis of this project (said it would be) very viable.”
When asked by Channel NewsAsia how confident the management is of nailing down a binding agreement with a bidder by mid-October, Ms Lum replied: “We can’t control the timeline. There’s a deadline given in our consensus agreement but if let’s say more time (is needed) then we have to sit down with Maybank to re-negotiate again.”
Independent director Simon Tay added: “Some people think of it as a real ultimatum for the company ... but it’s equally good for the bidders. Now the date has been set, they have much more urgency."
Describing this as a “relatively good positon to be in”, Mr Tay said: “We don’t want fire sale madness but a process that is transparent, with competitive bids and there is a clear deadline for everyone to work towards. I think this can surface rational price.”
Hyflux has also signed non-disclosure agreements (NDAs) with 19 interested parties to seek rescue financing – a number that has exceeded the company’s expectations, according to EY Partner Glenn Peters.
He added that this remains in “early days” as the company looks to “reduce the size over the next few weeks to determine who’s the most serious of the parties”.
HYFLUX "STILL VERY VIABLE"
Before the media briefing on Thursday, Hyflux also held the first of three townhall meetings with its stakeholders. After the earlier session for noteholders, holders of Hyflux’s preference shares, perpetual securities and ordinary shares will have their meetings with the management at 7pm on Thursday and Friday.
A presentation slide regarding the reorganisation process was shown to noteholders at the earlier meeting, before a question-and-answer segment.
As for details of its consent solicitation exercise, Hyflux’s executives said the process has not been a “simple straight forward one” given the sheer size of its stakeholders and how it needs to first get the consent of its 29 creditors.
However, the company will be spearheading the process and details will be revealed in time, said Mr Manoj Sandrasegara, partner of WongPartnership.
“We have fair ideas what has to be done and we are looking at fresh rescue financing, maybe getting an investor in or a combination of two. In terms of timeline, we are in the process of speaking to many parties and at some point in time, we will get down to some specifics, whether it’s payment in full or there will be slight shortfall. Those terms will be discussed.”
“We have been given six months for the restructuring and we are confident that we can do it within that time," he said.
Internally, Ms Lum said the company has not made any lay-offs despite its challenging circumstances, though there has been “some resignations”.
Given that the company still has three half-completed projects in places like Saudi Arabia, as well as a handful of new projects in Iran and Turkey, it still needs manpower.
“We still have so many projects lined up that we need to execute and protect. At the end of it, even when the whole restructuring is done, the business has to be viable,” she told reporters.
“With the news out, you can imagine that some of the staff have been frightened that they may not have a job the next day. My job is to assure them whatever we do, we want to turn around this business and back to where we were again.”
Ms Lum said over the last few months, she has been reaching out to the company’s critical customers over the world.
The founder noted that most of them remain “very supportive”. The new projects also indicate that Hyflux is “still very viable” and “still wanted” despite its current circumstances.
She added: “It is just one (project) that caused us to be like that but that doesn’t mean that we have lost our competitiveness. My job is to motivate the staff and let them see that after turning around, there's another good coming.”