The High Court yesterday gave embattled water treatment firm Hyflux and its three subsidiaries just one month of reprieve from their creditors until May 24, instead of the three months it had sought, as the firm works on two possible plans to avoid liquidation.
The order was passed just days before an earlier court-sanctioned protection from creditors was set to expire next Tuesday.
At the same time, a group of seven unsecured banks, which collectively hold $648.7 million of debt, was granted leave by the High Court to file applications for Hyflux and Hydrochem Singapore to be placed under judicial management. The group must first apply for permission to start an action for judicial management on May 7, and if successful, the application will be heard on May 13.
In a bid to get more time, Hyflux announced it had received a non-binding letter of intent for a possible $400 million injection from an owner and developer of water and power utilities based in the Middle East. The potential investment will be used for equity and working capital purposes, as well as possible urgent interim funding, Hyflux said.
If an acceptable strategic investment is not achieved, Hyflux founder Olivia Lum proposed a second plan involving ongoing projects and assets to be transferred to a special-purpose vehicle (SPV) to be wholly owned by Hyflux.
"The shares in the SPV will be pledged to the senior unsecured creditors via a scheme in exchange for partial retirement of the senior unsecured debt," Ms Lum said in an affidavit released yesterday.
"Through this SPV, potential investments or sales can be made and realisation from the existing contracts can be done," she said.
Under Plan B, the perpetual securities and preference shareholders will remain on Hyflux's books. The engineering, procurement and construction business could be restructured, she said, and be the source of future distributions if successful.
Hyflux lawyer Manoj Sandrasegara of WongPartnership said yesterday: "We lost a bride at the altar, but it doesn't mean we can't get a second one."
Seeking more time for the company to restructure, he said: "This is not some unknown business."
But Justice Aedit Abdullah asked if it was better to be "merciful" and liquidate the company, or have it go into judicial management. He also drew a comparison with prominent businesses like Toys 'R' Us that had gone bust.
Hyflux's proposals were challenged by sceptical creditors, including the group of unsecured banks and medium-term note (MTN) holders.
Mr Eddee Ng, senior partner at Tan Kok Quan Partnership, who represents the group of banks, argued: "We are 10 months into the restructuring. Beyond a non-binding letter of intent which (Hyflux) has shown to no one, we have nothing."
"As far as we know, these plans on paper remain hypothetical scenarios and we should call them as such," Mr Ng said. He also criticised the restructuring process as having "gone all over the place".
"It is marked by a lack of transparency by Hyflux and the application came at the back of repeated requests for information," he said. "There is good cause to replace the management of the company with a judicial manager because we have lost confidence in the management and board of Hyflux in continuing to run the restructuring. And this is echoed by a lot of retail investors."
Mr Ashok Kumar of BlackOak, who represents the MTN holders that are owed $265 million, said his clients are prepared to consider a moratorium extension if certain conditions are met. These include Hyflux allowing an observer at its board meetings and providing weekly cash flow forecasts.
Mr Manoj told the court that the Hyflux group had around $50 million in its cash balance at the start of its restructuring process in May last year. "But that has dropped to $24 million after a year," he said.
Hyflux said it has reduced monthly overheads from $5.9 million in June last year to $3.3 million in March this year, and this is projected to drop further to $2.5 million this June.
This is after its employee headcount was cut from 1,732 in March last year to 1,078 in March this year, and is projected to drop to 980 in June. The corporate headcount, which stood at 424 in March last year, is projected to be cut to 159 this June.
"My faith in turning Hyflux around is not based on hubris or emotions," Ms Lum said.