SINGAPORE - Hyflux has taken a $916 million impairment for the nine months ended Sept 30, to adjust for a fall in carrying value of the Tuaspring water and power plant and other write-downs.
This figure was released on Saturday (March 2), after Hyflux submitted its latest statement of financial position to the High Court.
"The impairment loss . . . relates predominantly to the impairment loss arising from the assessment of the carrying value of Tuaspring and the impairment of receivables for previously completed projects," the water cleaning company wrote.
Hyflux had asked a valuer to conduct an up-to-date valuation of the Tuaspring plant, but no exact figure was shared in the submission.
The plant is part of the Tuaspring disposal group, classified under "held for sale" assets. At the end of March 2018, these assets were assigned a value of $1.47 billion. In a court affidavit filed last June, Hyflux chief Olivia Lum said that the Tuaspring plant had a book value of $1.3 billion.
At the end of September 2018, the value of Hyflux's held-for-sale assets was $651 million, or $824 million lower.
Hyflux said: "This valuation is based on the most recent market study conducted by K4K Training & Advisory SL, the same consultant who did a similar market study in 2016 (which supported the valuation then). The view taken in this most recent market study is significantly different from that in 2016 due to . . . the losses in the electricity market in the recent years and the projected lower spark spreads for the remaining concession period."
Noting that the current valuation is "significantly lower" than that adopted in 2016, Hyflux said that it intends to commission a further valuation to be undertaken by a different valuer for the purposes of finalising the 2018 full-year financial results.
"As the carrying value is a reflection of the current depressed market, in the event that the Singapore power market recovers to provide generation companies with sufficient spark spread margins, the valuation might then be revised," Hyflux said.
David Gerald, president of the Securities Investors Association (Singapore) or Sias, said that the provision for impairment was needed to reflect the "true value" of Hyflux's assets amid the restructuring exercise.
The impairment has put the Hyflux group in a net liability position of $136 million, indicating that the group is insolvent. Mr Gerald said: "Hyflux will thus be valueless if no restructuring is done."
However, if creditors consent to haircuts under its proposed restructuring scheme, Hyflux will return to a net asset position of $1.1 billion, according to the group's pro forma calculations. Mr Gerald said: "This means that the company may have positive value post restructuring."
Post-restructuring, Hyflux's pro-forma net tangible assets (NTA) per share would be 4.2 Singapore cents, based on an NTA of $815.3 million distributed across an enlarged share base after an equity injection and various debt-for-equity swaps.
Indonesia's Salim Group and Medco Group had earlier agreed to give Hyflux a $400 million equity injection in exchange for a 60 per cent stake in the company post-restructuring. Effectively, Salim-Medco is buying into Hyflux at 3.4 cents a share.
If the Salim-Medco deal goes through, Hyflux's debt securities holders and senior unsecured lenders will be cleaned off the balance sheet.
Retail perpetual and preference shareholders will have their $900 million in claims swapped for $27 million in cash and $69.2 million shares, assuming that the shares are valued at 3.4 cents apiece. That works out to a 10.7 per cent recovery rate on their principal.
Hyflux noted that the pro forma unaudited financials are for "illustrative purposes" and may not reflect the actual consolidated financial information of Hyflux after the restructuring. No cashflow projections have been shared yet.
Hyflux will hold a third round of town hall meetings with retail creditors on March 13 to discuss the restructuring scheme. At a scheme meeting on April 5, creditors will decide whether Hyflux should be restrcutured or liquidated.