SINGAPORE: Given how Hyflux’s debt restructuring plan offers “paltry and inequitable” returns to its small stakeholders, the Securities Investors Association Singapore (SIAS) said on Thursday (Feb 28) that it has submitted an alternative proposal seeking a fairer deal.
In a three-page letter signed off by its president David Gerald, the investor advocacy group said the rescue proposal announced on Feb 16 “clearly favours” the senior unsecured creditors that includes banks and noteholders who will “enjoy all the upside from the restructuring”.
This leaves “adverse implications” for the investors of Hyflux’s “subordinated” perpetual securities and preference shares – a large group of 34,000 people, with many being retail investors – SIAS said.
Under the current proposal, this group with claims of S$900 million in total, has been allocated a cash payout of S$27 million and 10.26 per cent of the company’s shares post-restructuring. This translates into a recovery rate of only about 10.7 per cent in cash and equity.
Unsecured creditors, meanwhile, are facing a recovery rate of about 24.6 per cent after being allocated S$232 million in cash and 27 per cent of shares.
But this rate could go up if contingent liabilities, such as liquidated damages in a construction project, do not crystallise.
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, according to an affidavit filed to the court on Feb 15.
READ: Hyflux lays out restructuring plan to revitalise business, but retail investors lament big losses
This, alongside other terms in the scheme, is unacceptable, said SIAS, citing feedback that its independent advisers have garnered from meetings with the informal steering committee and other retail perpetual securities and preference shareholders.
In the letter addressed to Hyflux’s board, it wrote: “At a very minimum, any returns over and above the projected liquidation recovery of 8.7 per cent to the unsecured claims should be proportionately distributed between the unsecured claims and the P&Ps.
“If the unsecured claims receive a return of x per cent higher than 8.7 per cent, the P&Ps should receive the same increased return of x per cent.”
The letter added that if any of the contingent claim does not crystallise, the recovery allocated to such contingent claim, including the S$230 million claim held by Mitsubishi Heavy Industries, should be “distributed proportionately” between the two creditor groups.
In a separate email, Mr Gerald elaborated: "The reason for this proposal is because a large number of the P&Ps are unhappy that the current offer is not equitable and they are receiving too little."
For instance, the proposed 3 per cent cash return is a “meagre fraction of the original principal”.
Hyflux also has not provided sufficient financial information for stakeholders to “meaningfully assess” the value of the shares they are being allocated under the restructuring.
“It follows that even after the restructuring process, the P&Ps will still remain stranded in considerable uncertainty as to return on their investments for the foreseeable future."
Neither has any information been given about the identities of those who will be given the management payout.
“This is particularly troubling as the sum allocated to these recipients potentially amounts to approximately S$18.8 million in the event that all the contingent claims do not crystallise," the letter wrote.
“Our proposal now is to provide the P&Ps with a little more, which requires the approval of other classes of investors,” Mr Gerald added.
The SIAS chief said he gave the alternative proposal to the Hyflux board during a meeting on Wednesday afternoon.
He added: “Without a satisfactory response on the matters set out above, we are of the view that the P&Ps are highly likely to forego the paltry and inequitable return as currently envisaged by the Hyflux Scheme and vote against its acceptance.”
Mr Gerald urged all stakeholders to consider the proposal for a “win-win” resolution and respond by Mar 8.
When contacted, Hyflux said the proposal "has been communicated to the senior unsecured creditors through the advisers".
Separately, a group of perpetual securities and preference shares investors have started a public petition calling for the Government to take back Hyflux's largest asset - the Tuaspring Integrated Water and Power Plant.
Channel NewsAsia understands that the investors plan to submit the petition sometime this week.