Clash over $2.7b of debt at Hyflux heats up

Hyflux funded its business expansion with junior debt and counts some 34,000 mom-and-pop investors among its creditors.
Hyflux funded its business expansion with junior debt and counts some 34,000 mom-and-pop investors among its creditors.ST PHOTO: LIM YAOHUI

SINGAPORE (BLOOMBERG) - Singapore's troubled water treatment company Hyflux, formerly celebrated as a hallmark of entrepreneurship in better times, is set for a humbling week.

Creditors are due to file proof by Friday (March 1) of the obligations that Hyflux owes them, putting the company's $2.7 billion unsecured debt load under an even brighter spotlight. The firm this month unveiled a proposal to impose 75 to 90 per cent 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 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.

WHY IT MATTERS

Hyflux funded its business expansion with junior debt, some sold through ATMs; 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 $1.9 billion of local bonds had fallen into default since late 2015, according to Bloomberg data.

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 Southeast Asia. The asset is secured against loans from Malayan Banking Bhd.

Net debt to Ebitda surged to 165 times in Q1 2018 vs 3.9 times a year earlier, according to Bloomberg data.

Market capitalization shrank to $165 million when shares halted in May 2018. They were worth $2 billion at its peak in 2010.

KEY RESTRUCTURING TERMS

Hyflux seeks a $400 million cash injection from Indonesian tycoons in exchange for 60 per cent equity.

Hyflux plans to convert debt into 36 per cent of equity, shared by bank lenders ($717 million), medium-term note holders ($278 million), trade claimants ($11 million), contingent claimants ($678 million), perpetual securities holders ($500 million) and reference shares holders ($400 million).

Shareholders will see their holdings diluted to 4 per cent.