Perpetual, preference shareholders get nothing in liquidation: Hyflux

Hyflux owes $900 million in principal value to perpetual and preference shareholders.
Hyflux owes $900 million in principal value to perpetual and preference shareholders.PHOTO: LIANHE ZAOBAO

Water cleaning firm Hyflux faced its grey-haired creditors last Friday for the second time since it filed for bankruptcy protection, in a bid to rally support to carry through what has proven to be a tough rescue deal.

No definitive answers were given when investors repeatedly asked how much of their money they could expect to recover. Only one new figure was shared by EY, the financial adviser.

In a liquidation scenario, only senior unsecured creditors, namely banks and note holders, will get paid. They can expect a recovery rate of 3.8 to 8.7 per cent. Subordinated creditors such as perpetual and preference shareholders will get nothing.

Hyflux chief Olivia Lum opened two townhall sessions at Hyflux Innovation Centre last Friday by addressing why she was not using her own cash to recapitalise Hyflux, despite repeated calls for her to do so.

She told perpetual and preference shareholders: "With SM Investments coming into the company, this is effectively a takeover and I no longer will own much shares, in fact almost no shares. So I will no longer be in the driving seat."

Last October, SM Investments, a consortium comprising Salim Group and Medco Group, tabled a deal to invest and lend $560 million to Hyflux in exchange for a 60 per cent stake in the company once it has settled all its debts.

Sources told The Business Times that Ms Lum added to light applause: "I know many people do not like to see my face any more. I'm okay, I'm prepared to step down, I just want to make sure I hand over the company properly to the new investor."

SM Investments has left a 40 per cent equity stake on the table for Hyflux's various stakeholders to share in a rescue plan, she said, adding: "I'm only worried for the papas and mamas, that in the case of liquidation, they will really get zero value... Without support for the rescue plan, the alternative for Hyflux will likely be liquidation."

Hyflux owes $900 million in principal value to perpetual and preference shareholders. It was hinted that they might have to take a debt-for-equity conversion, though how fair the conversion rate would be was not discussed.


Hyflux's medium-term note holders, who are owed a nominal value of $265 million, were told that they might receive some cash and equity. Again, exact quantums were not discussed.

It remains to be seen how much cash there is to go around after budgeting for working capital is factored in.

Asked if the company could extend the maturity of the notes and pay note holders a lower coupon before redemption, Mr Arief Sidarto, chief executive of SM Investments, replied no. Hyflux's business is capital intensive and he wants to make sure it is ready to move forward after the restructuring is completed, he said.

Most note holders seemed more easily comforted by what they heard and their question-and-answer session ended early, with time to spare. Reactions from perpetual and preference shareholders were more mixed.

Hyflux intends to finalise the terms of a restructuring deal by mid-February, including exactly how much in cash or equity each creditor group will be allocated.

A third round of townhall meetings will be held on March 13.

Next month, Hyflux will go to court to ask for approval to call a scheme meeting, and all creditors will vote on the scheme of arrangement by the end of March.

A version of this article appeared in the print edition of The Straits Times on January 22, 2019, with the headline 'Perpetual, preference shareholders get nothing in liquidation: Hyflux'. Print Edition | Subscribe