Disgruntled retail investors holding Hyflux perpetual securities and preference shares have come up with an alternative proposal that could claw back more money for the 34,000-strong group that is owed around $900 million.
The Securities Investors Association (Singapore), or Sias, said a large number of these investors are "unhappy that the current offer is not equitable and they are receiving too little".
The existing plan would give the 34,000 registered holders of perpetual securities and preference shares a total of $27 million in cash and a 10.38 per cent share of the reorganised company.
So they would recover $107.40 for each $1,000 invested, or an implied return rate of 10.74 per cent.
The $27 million in cash, which works out to a 3 per cent cash return to retail investors, is "a meagre fraction of the original principal", Sias president David Gerald said in a letter to the Hyflux board yesterday.
Sias represents an informal steering committee of these investors.
In comparison, unsecured creditors, including banks and contingent claimants, will receive 27 per cent of shares and $232 million in cash distribution. Medium-term note holders, who are of a higher priority on the creditors' list, would get $245 for every $1,000 invested, an implied return rate of 24.5 per cent.
Hyflux owes $1.68 billion to unsecured creditors, including $678 million to contingent claimants. Contingent liabilities include banker's guarantees, performance bonds and liquidated damages in a construction project if there are delays.
Hyflux's restructuring adviser from Ernst & Young Solutions has said that assuming 50 per cent of contingent claims are crystallised, the unsecured creditors' recovery will be about 29 per cent.
But if the contingent claimants drop all claims against Hyflux and forgo their entitlement under the plan, the unsecured creditors' recovery will jump to 80 per cent.
The remaining 20 per cent will be distributed to managers of the projects for which the contingent claim is extinguished, according to EY. This is to get project managers to complete projects on time so that more claims will not be called.
But Mr Gerald said this proposed payout is "unacceptable" because retail investors would not get any share of the contingent claimants' foregone entitlement. "The current proposal clearly favours the unsecured claims as they enjoy all the upside from the restructuring, which is clearly inequitable," he said.
He added that any entitlement foregone by contingency claimants should be "distributed proportionately" between the unsecured creditors and the investors in perpetual securities and preference shares.
An overwhelming majority of perpetual securities and preference shareholders have sunk a significant portion of their personal savings in the company, he noted.
"The sudden unravelling of the company's financial position, less than three months after it conducted a dividend in specie exercise, has left investors disoriented and in a state of disbelief as to the scale of their potential losses.
"While we understand the perpetual securities and preference shareholders stand to receive nothing in a liquidation scenario, they require a more equitable distribution of the assets of the company," he said.
Mr Gerald added: "Without a satisfactory response on the matters, we are of the view that the perpetual securities and preference shareholders are highly likely to forgo the paltry and inequitable return... and vote against its acceptance.
"If the Hyflux scheme is not carried and the company goes into liquidation, the holders of the unsecured claims will stand to lose more than if they were to accept our alternative proposal."
Hyflux said yesterday that the Sias proposal has been "communicated to the senior unsecured creditors through the advisers."
Sias asked for a response on its proposal by March 8.