Indonesian firms hand Hyflux S$530m lifeline, but questions raised on whether deal would get green light

SINGAPORE — Following a spectacular fall from grace, beleaguered water treatment firm Hyflux got a S$530m lifeline on Thursday (Oct 18).

But questions have been raised on whether the proposed investment — which would see a consortium of two Indonesian firms getting a majority stake in Hyflux — would get approval from the authorities here.

Under the binding agreement signed on Thursday evening, SM Investments — made up of Salim Group and Medco Group — will acquire 60 per cent of Hyflux for S$400 million, and grant a shareholder’s loan of S$130 million.

It will also grant a S$30 million loan for interim working capital before the completion of the deal. SM Investments is 60 per cent owned by Salim Group and 40 per cent owned by Medco Group.

SM Investments will also try to help Hyflux obtain additional working capital and trade facilities from third-party lenders.

Stakeholders — bank lenders, noteholders, preference share and perpetual securities holders — would have to agree to the scheme of arrangement. Agencies such as national water agency PUB and the National Environment Agency will also need to give the green light.

“The fact that regulatory approvals are required for change of control would suggest that who the owners are matters,” said Associate Professor Mak Yuen Teen of the National University of Singapore’s business school. “Do we want a strategically important asset like the Tuaspring desalination plant, the largest in South-east Asia, to be foreign-owned? I would not be at all surprised if this does not clear regulatory approvals.”

The corporate governance expert added: “It’s a shame that we built government-linked companies in strategically important industries over the years and we can’t come up with something viable in this case that will keep this locally owned.”

However, CIMB Private Banking director Song Seng Wun said he did not think Salim Group and Medco Group’s proposed investment mattered at this juncture because the utility sector is already open to foreign investors. He said the deal was a “fairly straightforward investment” into Hyflux itself.

At a hastily convened press conference at Hyflux Innovation Centre, Hyflux group chief executive Olivia Lum called it a “happy day”, as she announced that the company’s board of directors unanimously chose SM Investments as its strategic partner. The company had 16 potential interested parties, which was later narrowed down to eight.

Salim Group, chaired by Mr Anthony Salim, is one of Asia’s largest conglomerates and controls Pacific Light Power, an 800 megawatt power generation company in Singapore. It provides water and wastewater services in the Philippines and water treatment and distribution in Indonesia, and also owns food company Indofood.

Medco Group, founded by Mr Arifin Panigoro, is made up of an integrated energy and natural resources company, plantations and other entities. It operates the West Natuna Transportation System pipeline which delivers gas to Singapore.

Ms Lum said the PUB’s approval was needed even though Hyflux was no longer selling its Tuaspring desalination and power plant.

But she said: “It won’t be a big hurdle because management is intact, I’m around so business is as per normal. And when investors invest money into the group itself, it’s actually to relieve the group. So I don’t see much problem going forward, but of course we still need to get approval.”

TODAY has sent a query to PUB.

On Monday, Hyflux announced that it managed to secure a deadline extension by two weeks imposed by Maybank — Hyflux’s largest secured lender — for the firm to find a buyer for Tuaspring. With the new deal on the table, Ms Lum said Hyflux has to engage Maybank on the matter, and any announcement will be made subsequently.

Assoc Prof Mak said he hoped the retention of the incumbent management “did not become a poison pill for some potential investors who may want to manage it themselves”.

He added: “I hope that when the board was evaluating the proposals, there was flexibility in terms of whether to retain current management… Hopefully the interests of the bondholders, (perpetual securities) holders and shareholders were prioritised ahead of management’s interests.”

INVESTOR’S S’PORE LINKS

Mr Salim said the Salim Group is no stranger to Singapore and that SM Investments is a Singapore-registered company. Mr Arief Sidarto, SM Investments’ chief executive, is Singaporean, said Mr Salim, who added that he himself studied here.

“And I make sure the CEO of this company (Hyflux) is a lady. A strong lady is going to continue at this leadership for a few years, if not more. Depends on her willingness; for us, it’s no objection,” said Mr Salim, gesturing to Ms Lum whom he first met about 25 years ago.

Ms Lum said all of Hyflux’s major assets are in Singapore and reckoned it would continue to be a Singapore company. With the backing of Mr Salim and Mr Arifin, Hyflux would be taken to greater heights and could explore opportunities in Indonesia, she said.

“Indonesia will be a big country for us in addition to Middle East… the investment from SM Investments not (only) gives us a lifeline but (is) also going to grow the company,” she said.

According to a filing made to the Singapore Exchange, the S$530 million is to go towards the settlement of unsecured debts, preference shares, perpetual securities, contingent debt and trade debt, as well as working capital needs of Hyflux.