Clash over RM8b of debt at Singapore’s Hyflux heats up

SINGAPORE • Singapore’s troubled water treatment company Hyflux Ltd, formerly celebrated as a hallmark of entrepreneurship in better times, is set for a humbling week.

Creditors are due to file proof by tomorrow of the obligations that Hyflux owes them, putting the company’s S$2.7 billion (RM8.14 billion) unsecured debt load under an even brighter spotlight. The firm this month unveiled a proposal to impose 75% to 90% haircuts on unsecured creditors, following a tumble triggered by an ill-timed expansion into energy in recent years.

Singapore’s debt market has inflicted deep losses on unsecured creditors since the oil-market slump in late 2013, as a myriad of companies followed shipbuilders and charterers into distress.

Some Hyflux investors have banked on government’s help, given that the company owns the Tuaspring desalination plant deemed crucial to Singapore’s water supply. But those bets may be misplaced, some observers argue.

“From some of our conversations, many have invested in Hyflux based on the premise of government backing,” said Ang Chung Yuh, a fixed-income analyst at iFast Corp in Singapore. “It’s a misconception.” While the asset is critical, the holding company isn’t, he added.

Hyflux hasn’t published its accounts since reporting a S$22.2 million loss in the first quarter of 2018 (1Q18). It has agreed to release its 2018 full-year financial statements by March 1 to enable creditors to evaluate its debt proposal, according to a court filing.

Why It Matters

• Hyflux funded its business expansion with junior debt, some sold through automated teller machines; it counts some 34,000 mom-and-pop investors among its creditors, and angers abound.

• There have been petitions to vote against Hyflux’s proposal, as well as calls in private chat groups for state rescue at a time when general elections are around the corner.

• Even before Hyflux’s distress, some S$1.9 billion of local bonds had fallen into default since late 2015, according to Bloomberg data.

Key Background

• Hyflux investors, especially holders of junior debt, are calling for better terms and state intervention, at least in private chat groups. The government has said in Parliament that it’s inappropriate to comment on the Hyflux debt situation, saying it’s “a commercial matter”.

• The company obtained court protection in May 2018 to fend off creditors, and brought in a white knight in October. Hyflux’s key asset is the Tuaspring plant, the largest in South-East Asia; asset secured against loan from Malayan Banking Bhd.

• Net debt to earnings before interest, taxes, depreciation and amortisation surged to 165 times in 1Q18 versus 3.9 times a year earlier: Bloomberg data.

• Market capitalisation shrank to S$165 million when shares halted in May 2018; worth S$2 billion at its peak in 2010.

Key Restructuring Terms

• Hyflux seeks a S$400 million cash injection from Indonesian tycoons in exchange for 60% equity.

• Hyflux plans to convert debt into 36% of equity, shared by: Bank lenders (S$717 million); medium-term note holders (S$278 million); trade claimants (S$11 million); contingent claimants (S$678m); perpetual securities holders (S$500 million); preference shares holders (S$400 million).

• Shareholders will see their holdings diluted to 4%.

Key Dates to Watch

• March 1: Hyflux asks scheme parties to file proofs of claim by this date, and expects to publish its latest financial accounts.

• April 5: Scheme creditor meetings starting from noon local time to vote on the company’s debt proposal.

• April 11: Tentative date for court to sanction voting results.

• April 16: Target restructuring effective date, or soon after.

Other Cases

• Ezra Holdings Ltd: 0% to 2% recovery for unsecured bondholders.

• Ezion Holdings Ltd: Debt extension, coupon reduction, principal preserved.

• Nam Cheong Ltd: 5%-20% recovery under cash-out options for sustainable debt.

• Rickmers Maritime: Liquidated, zero recovery for unit holders. — Bloomberg