Utico supports further extension of Hyflux debt moratorium provided no 'value leakage'

Utico claimed that Hyflux's board and its advisers have "refused" to guarantee that they will stop any "leaking of value" in the event that the extension is granted by the court.
Utico claimed that Hyflux's board and its advisers have "refused" to guarantee that they will stop any "leaking of value" in the event that the extension is granted by the court.PHOTO: ST FILE

SINGAPORE - Potential white knight Utico said it supports a further extension of Hyflux's debt moratorium - as long as the troubled water treatment firm can confirm there will be no "value leakage", and that an extension will not be prejudicial against Hyflux's creditors and perpetual and preference (PNP) shareholders.

This is of particular concern given that Hyflux still has not signed the definitive restructuring agreement, although Utico had already signed it on the Aug 26 deadline, the Middle Eastern utility firm said in a statement released on Friday (Sept 27).

Last week, Hyflux and three of its subsidiaries requested the court to extend their debt moratorium by another two months until November. The applications will be heard in court on Sept 30, when the previous extension expires.

On Friday, Utico claimed that Hyflux's board and its advisers have "refused" to guarantee that they will stop any "leaking of value" in the event that the extension is granted by the court.

"The same issues - of advisers' fees, board representation and management oversight, all of which are related - have remained as the key gap items even till today," the utility firm wrote.

Hyflux earlier clarified on Aug 28 that parties had yet to resolve "final outstanding issues" in the draft agreements.

Utico proposed a rescue package which will see it taking an 88 per cent stake in Hyflux through a S$300 million equity injection and a S$100 million shareholder loan. In addition, Utico intends to offer the cash equivalent of a 4 per cent stake in the enlarged Utico group plus additional cash to PNP investors.

During a poll at an Aug 1 town hall, over 77 per cent of representative PNP attendees approved the PNP portion of the offer, Utico noted on Friday.

 
 
 
 

In addition, Utico said it has also written to the Securities Investors Association (Singapore), or Sias, stating that the utility firm is keen to file an affidavit with Sias' support and to offer further testimony of Utico's negotiations with Hyflux starting from its offer and entry in mid-April 2019, if the court requires it.

Under the restructuring agreement signed by Utico on Aug 26, there are clauses that require Hyflux to inform Utico of any other investor offers, said Richard Menezes, chief executive officer of the utility firm. The agreement also contains clauses that imply a right of first refusal for Utico, as they give Utico the right to match the higher or lower offers, he added.

"Hyflux's board is also obliged by fiduciary duty and responsibility to accept the highest offer without prejudice to creditors and PNP investors," Mr Menezes noted.

The agreement has received the support of creditors and Sias, according to him.

Mr Menezes emphasised that his company is still committed to the same terms under the Aug 26 agreement.

"This situation was not caused by Utico, and it has not gotten better with any further passage of time," he added.

Utico's statement on Friday comes almost a week after Sias said it is "fully supportive" of Hyflux's request for an extension of the debt moratorium. The investors' rights advocacy group also said it believes there will be no prejudice caused to the creditors.

In August, Utico first gave Hyflux an ultimatum to ink a definitive deal, failing which it would walk away from a potential investment into the insolvent water treatment firm. However, days after, Utico changed its mind, giving Hyflux until Aug 26 to enter into the definitive agreement for the utility firm's intended investment.

Prior to Utico, Hyflux saw a failed deal with SM Investments, an Indonesian consortium formed by Salim Group and Medco Group, which had offered a S$530 million plan to help Hyflux fix its defaults under the water contract. The rescue plan was canned in April.

Hyflux shares have been suspended from trading since May 2018.