Court gives Hyflux 6-month break from creditors; company in search of S$200m rescue financing

Singapore

A SINGAPORE High Court has granted Hyflux a six-month lifeline to stave off creditors.

Now the pressure is on for the struggling water project developer to find a buyer for its giant Tuaspring asset, and seek out some firm offers from rescue financiers.

Hyflux is seeking to raise about S$200 million in rescue financing, after a Singapore High Court on Tuesday granted it a six-month reprieve from creditors to work out a survival plan and reorganise its debts.

Without the debt moratorium, Hyflux would "run out of cash in the next four to five weeks", Wong Partnership partner Manoj Sandrasegara told the Court.

The bank debt of the entire Hyflux group is S$1.84 billion. That excludes S$265 million in outstanding medium-term notes, S$400 million in outstanding retail perpetual preference shares and S$500 million retail perpetual securities.

Hyflux and its subsidiaries under the moratorium had a cash balance of just S$18.6 million as at June 4. That represents a net cash outflow of S$300,000 since May 18.

Hyflux founder Olivia Lum did not attend the court hearing on Tuesday.

But if Hyflux can get a S$200 million cash injection, that would help fund construction at Hyflux's ongoing TuasOne and Qurayyat projects, and help the group secure new projects for the future, she told the court through a June 14 affidavit.

Hyflux is in preliminary talks with about 27 potential rescue financiers. Seven have signed non-disclosure agreements (NDAs) with Hyflux and more than 20 others are still negotiating NDAs, Ms Lum wrote. If these interested parties express concrete interest after having seen limited data about Hyflux, they will proceed to more advanced discussions.

Hyflux estimates that it will cost S$132 million to complete the TuasOne waste-to-energy plant in May 2019, upon which it will enjoy a net cash inflow of S$291 million.

The Qurayyat desalination project in Oman is expected to cost US$28 million to complete. After delays owing to funding and technical issues, Hyflux will get a net cash inflow of US$5.6 million once commercial operations commence in September.

The six-month lifeline (which ends around this time in December) gives Hyflux's interested rescuers the time to "get their act together" and arrange a S$200 million syndicated loan, Mr Sandrasegara said. Such a loan may be disbursed to Hyflux over a period of time as it reaches different milestones, he added.

Another priority for Hyflux is the sale of the Tuaspring Integrated Water and Power Project - its largest but loss-making asset, which will be returned to national water agency PUB in 2038. Hyflux is in discussions with four parties on a possible sale of Tuaspring, Ms Lum wrote.

"With the improving market conditions (and forecasted future improvement), I am confident that, given sufficient time, Tuaspring can be divested at a price around or above its present S$1.3 billion book value," Ms Lum wrote in her affidavit.

Although Tuaspring had been placed on the market in 2017, low electricity prices at that time meant that it would not have served Hyflux's stakeholders to accept the early bids, she wrote.

Negative "spark spreads", which represent the difference between the price received for electricity produced and the cost of natural gas needed to produce that electricity, persisted in 2016 and 2017, which meant that Tuaspring's revenue could not cover its operating costs and financing costs during that period, Ms Lum wrote.

However, spark spreads have turned positive since February 2018 and have stabilised through May in contrast to previous spikes. Tuaspring has been able to cover short-run marginal costs, but not financing costs, since March 2018. Ms Lum described that as an "encouraging development".

If Tuaspring is sold at book value or higher, Hyflux would have about S$900 million left after paying off secured project finance lender Maybank in full, Ms Lum wrote. That money could be used to settle other debt, including redeeming the preference shares and perpetual securities, she added.

Maybank is Hyflux's largest secured creditor. The moratorium granted on Tuesday did not extend to Tuaspring, and Maybank did not state its position on Tuesday's proceedings. Instead, the Court will hear Tuaspring's application for a separate moratorium in two weeks.

Hyflux has 29 bank lenders. Among the six banks that did support Hyflux's moratorium were Mizuho, Hyflux's largest unsecured bank lender which is owed S$235.2 million in total, and DBS, which is owed S$93.6 million.

Besides the Tianjin Dagang plant in China (net book value of S$139.8 million), Hyflux is not mulling a sale of any other assets at this time.

Ms Lum held that if Hyflux is liquidated, unsecured creditors are likely to suffer a 72 to 85 per cent loss of face value.

For Hyflux to emerge with a "more manageable debt load", Mr Sandrasegara said on Tuesday that the company will use the six-month moratorium to commence consent solicitation exercises for holders of its notes and perpetual instruments.

This is likely to include an extension of maturity on the notes, and a deferment and reduction of coupon payments on both the notes and perps. The company will also pursue a scheme of arrangement with creditors to waive all defaults prior to the scheme of arrangement, and to reschedule liabilities that have fallen due.

Hyflux, together with the Securities Investors Association (Singapore), will conduct town hall meetings for investors on July 19 and 20.

The Court has ordered Hyflux to provide an update in three months to the Court and creditors. A status conference will take place two weeks after that update.

Ezien Hoo of OCBC Credit Research told The Business Times after Tuesday's hearing: "So far we've only heard enough to know that bank lenders holding 33.5 per cent of Hyflux's total bank debt are willing to come to the negotiation table but we don't yet have . . . a firm view on whether the company will emerge as a viable business."

Richmond Zhan, head of fixed income at Phillip Securities, said it remains to be seen what sort of terms potential rescuers may ask for in exchange for their money: "There might be implications where senior debt becomes subordinated."

Ms Hoo added: "Rescue financing would take priority over the perps should the company eventually go into liquidation, assuming the in-court restructuring fails."