SINGAPORE - Hyflux's restructuring - which may include a combination of haircuts, debt maturity extension, or interest rates adjustments - could lead to financial losses for creditors, Moody's Investors Service said in a research report released on Friday (May 25).
On May 22, the water project developer had applied for court protection to facilitate the restructuring of its $1.5 billion debt. The company also announced that it plans to skip the upcoming coupon interest payment on its $500 million perpetual securities.
Analysts from Moody's noted that Hyflux's creditors include about 30 financial institutions, most of which are Singapore branches and subsidiaries of foreign banks; and that these institutions, along with other investors, could suffer loses on their Hyflux exposures.
"The company has a large amount of secured debt, which heightens the risk to its unsecured creditors," Moody's said.
As the credit-ranking firm points out, Hyflux's loans and borrowings are dominated by banks - 68 per cent of Hyflux's debt is unsecured, of which 51 per cent is in the form of unsecured bank loans.
In addition, Maybank Singapore and its related entities are likely to be one of Hyflux's key secured creditors, Moody's noted. In 2013, Maybank had agreed to provide an 18-year, $720 million financing facility to a Hyflux project called Tuaspring, a desalination and electricity generation plant in Singapore.
"The loss-making Tuaspring project has become the centre of Hyflux's problems because low electricity prices have dampened its electricity generation revenue. At the same time, Tuaspring's desalinated water output will continue to be in demand in Singapore, which still relies on imported water to meet its total water needs."
On this note, Moody's analysts believe that potential losses to Maybank should be limited.
"We assume that most or all of Maybank's exposure is secured by the Tuaspring project or related cash-flow receivables, or both. This should mitigate losses for Maybank in a worst-case scenario where Hyflux goes into bankruptcy," the analysts said.
They added that Hyflux's problems are related to large debt and excess capacity in Singapore's power generation sector that keeps electricity prices depressed.
Nonetheless, noting that most of Singapore's largest power generating companies have strong shareholders with diversified portfolios, Moody's analysts do not view Hyflux's problems as being symptomatic of an industry-wide deterioration in the asset quality of banks' loans to other large infrastructures companies in Singapore.
Moreover, these companies' power assets were mostly commissioned years ago, implying that debt load on these projects should be more manageable compared against Tuaspring which was commissioned in 2015, Moody's said.
"The risk that they would follow Hyflux's restructuring path is low," the analysts said.
Shares in Hyflux have been suspended and last traded at 21 cents apiece on May 18.