Maybank, Hyflux to consider other options as Sembcorp’s Tuaspring bid too low

By MARK RAO / Pic By TMR File

MALAYAN Banking Bhd (Maybank) and Hyflux Ltd are expected to explore other options after Sembcorp Industries Ltd emerged as the only bidder for the latter’s Tuaspring project in Singapore, said RHB Research Institute Sdn Bhd.

According to a report carried by Singapore’s Business Times, Sembcorp’s final bid for the Tuaspring Integrated Water and Power Plant came in below the asset’s S$1.47 billion (RM4.42 billion) book value as of March this year.

The sale of the asset, which includes South-East Asia’s biggest desalination plant, is aimed at helping to finance cash-strapped Hyflux’s S$2.95 billion in liabilities.

Based in Singapore, the company initiated a court-supervised reorganisation process in May this year and secured a six-month debt moratorium.

Hyflux also agreed with Maybank to execute a binding deal with a successful bidder by Oct 15 this year. Maybank’s total exposure to Hyflux is at S$658.6 million after it agreed to provide an 18-year financing facility for the Tuaspring plant back in 2013.

It was reported that Sembcorp’s offer for the asset is below book value and will be insufficient to fully finance the loans owed to Maybank, which is the main creditor for the project.

According to reports, Keppel Corp did not submit a binding bid by the Oct 1 deadline despite showing interest in the asset.

“We believe that Hyflux and Maybank will unlikely accept a bid that is too low and are likely to explore other options.

“This includes an appeal to Singapore’s Public Utilities Board (PUB) to grant approvals for more interested parties to study detailed information on the Tuaspring plant,” RHB Research said in its research report yesterday.

According to the Business Times report, Hyflux could look to negotiate with Maybank to explore alternatives including an appeal to the PUB, which regulates the republic’s state water supply.

The report also said there are overseas investors who remain keen on Hyflux’s entire business and are willing to refinance its liabilities.

“However, any investment could again hinge on the local regulators’ approvals for the Tuaspring ownership.

“Our sensitivity analysis, assuming bid offers at 20% to 40% of Tuaspring’s book value, suggests that our forecast for Maybank’s 2018 financial year net profit could be lowered by 1% based on a sale at 40% of the latter’s book value,” RHB Research noted.

It added that the net profit forecast would drop 8.6%, if the bid is done at a low 20% of Tuaspring’s book value.

As such, the research house maintained its ‘Buy’ call on Maybank with the target price of RM11 — a 13.3% upside from its last closing price — based on a Gordon Growth Model-derived 1.5 times price to book value.