The prospect of Indonesian white knight SM Investments riding to the rescue of debt-laden Hyflux looks even more at risk after a dispute over the terms of their agreement worsened yesterday.
The latest blow to the $530 million bailout plan came in the form of a terse statement from SM Investments that suggested Hyflux had held back key information on the group's fragile financial state.
SM Investments said yesterday it had underestimated how much it would take to rescue Hyflux after "new material information" had come to light.
These concern chiefly the way $272 million - $271 million from SM Investments and $1 million from Hyflux - will be allocated between paying Hyflux's debtors and boosting the firm's ability to operate.
"Had the material information been disclosed earlier, (SM Investments) would have taken it into consideration in the allocation previously discussed with creditor groups," the company said.
SM Investments had only recently come to know of information that would significantly raise Hyflux's need for working capital, it added. "In the light of the new material information ... (SM Investments) has been reviewing the allocation of the investment for the working capital."
The review will "in turn affect the amount available for settlement to creditors".
Investors who hold the $900 million of unsecured perpetual securities and preference shares stand to lose about 90 per cent of their money under the rescue plan, and it is not clear how SM Investments' review will affect the amount investors might receive.
The statement noted that a restructuring agreement signed last October stated that Hyflux and SM Investments must agree on how to allocate the financial injection.
But SM Investments does not agree with Hyflux's proposed allocation, so the agreement may not hold, the statement noted.
The Indonesian consortium also believes it has grounds to walk away from the rescue deal given recent developments around the Tuaspring power and water plants.
National water agency PUB has said that it will take over the Tuaspring Desalination Plant if Hyflux subsidiary Tuaspring Private Limited cannot rectify defaults by April 5. That would also mean terminating a water purchase agreement that has underpinned the plant's commercial operations.
SM Investments has demanded the faults be fixed, presumably as it wants Hyflux to retain the plant as a revenue-generating asset.
Another point of contention involves a desalination plant in Algeria, whose water buyers may scrap a purchase agreement due to defaults at the facility. SM Investments said it had come to know of this only on March 19, almost three months after the termination notice was issued to Hyflux on Dec 25.
Hyflux has disagreed with SM Investments' stance, noting on Tuesday that PUB had yet to terminate its water purchase agreement with the Tuaspring plant.
It also said that it has been taking active steps to "amicably resolve" the matters in Algeria, and the purchase agreement still stands.
If SM Investments "wrongfully terminates" the agreement, Hyflux would be able to lay claim to the $38.9 million deposit that was taken out of the proposed investment, it said in the filing.
Assistant Professor Leong Ching of the Lee Kuan Yew School of Public Policy said that the statement is "the clearest sign that it is a confluence of factors rather than a single trigger that is affecting SM Investments' decisions".
Prof Leong, who is also co-director of the Institute of Water Policy, said: "PUB will take away a substantial drag on the company if it takes over the plant. However SM Investments works its sums, having a toxic asset lifted is a plus."