High Court gives Hyflux 6-month break from creditors, with company in talks for $200m rescue financing

Hyflux is in discussion with four parties on a possible sale of its Tuaspring Integrated Water and Power Project. PHOTO: HYFLUX

SINGAPORE - Hyflux is seeking about $200 million in rescue financing and is in preliminary talks with more than 25 interested parties, lawyers for the water and power company said on Tuesday (June 19) as the Singapore High Court gave it a six-month reprieve from creditors.

The company is also in discussion with four parties on a possible sale of its Tuaspring Integrated Water and Power Project, and Hyflux founder Olivia Lum told the court in a June 14 affidavit that she was "confident" that improving conditions will allow the plant to be sold at or above its $1.3 billion book value.

Ms Lum, who was not present at the hearing, submitted those statements as part of Hyflux's application for a six-month moratorium on creditors' claims. The Court on Tuesday granted the application, and ordered the company to provide an update in three months to the court and creditors. A status conference will take place two weeks after that update.

In the June 14 affidavit, Ms Lum said that Hyflux is looking for rescue financing in the ballpark of $200 million not only to help fund construction costs for its TuasOne and Quarayyat projects, but also for the group to continue to secure new projects for the future.

The company is negotiating non-disclosure agreements (NDAs) with more than 20 interested potential rescue financiers and strategic investors, and has executed NDAs with another seven. If those interested potential rescuers wish to pursue a concrete arragement after having seen limited data about Hyflux, parties will proceed to more advanced discussions, Ms Lum said.

On Tuaspring, Ms Lum said that although the plant had been placed on the market in 2017, the weak electricity market at that time meant that indicative offers were "distorted", and it would not have served Hyflux's stakeholders to accept the early bids.

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 said.

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", adding that projections for growing electricity demand and lower electricity supply as steam plants are retired also bode well.

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

Ms Lum also gave details about Hyflux's current debt burden. The entire Hyflux group has total bank debt of about $1.84 billion and subordinated debt of $900 million, comprising $400 million of preference shares and $500 million of perpetual securities. That excludes $265 million of medium-term notes.

Available cash balance of Hyflux and the subsidiaries that are included in the moratorium application as at June 4 stood at $18.6 million, representing a net cash outflow of $300,000 since May 18.

Ms Lum held that if Hyflux is liquidated, creditors are likely to suffer a 72 to 75 per cent loss of face value.

Tuaspring could also be sold for significantly less than book value in a forced-sale scenario. If Tuaspring is sold at book value or higher, Hyflux would have about $900 million left after paying off secured project finance lender Maybank in full, Ms Lum said. That money could be used to settle other debt, including redeeming the preference shares and perpetual securities, she said.

Six banks, which together hold $617.9 million of debt owed by Hyflux, supported the moratorium, although Mizuho, KFW IPEX-Bank and Bangkok Bank Public Co sought a shorter moratorium. Those three banks are Hyflux's second, third and fourth largest creditors respectively.

For Hyflux to emerge with a "more manageable debt load", Wong Partnership partner Manoj Sandrasegara told the Court 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.

The company is targeting to conduct town halls for investor, with the Securities Investors Association (Singapore), on July 19 and 20.

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