PUB agrees to give Tuaspring more time to remedy defaults

National water agency will take over desalination plant if new deadline of April 30 is not met

National water agency PUB has given Hyflux's integrated water and power plant Tuaspring more time to remedy defaults arising under their water purchase agreement.

The deadline has been extended from April 5 to April 30, PUB said yesterday.

PUB will exercise its right to terminate the purchase agreement and take over the Tuaspring Desalination Plant if Hyflux fails to remedy defaults by the new deadline, it added.

Tuaspring had asked to have the deadline extended because it is "currently loss-making and will require support" from its parent company Hyflux, PUB said.

But Hyflux's "ability to provide financial support to Tuaspring will depend on whether it is able to complete its restructure and to obtain the investment from SM Investments", it added.

The Indonesian white knight investor had earlier queried Hyflux's ability to fund its working capital based on a proposed rescue plan.

PUB told the Securities Investors Association (Singapore), or Sias, yesterday that it has given Tuaspring sufficient time to be "reliably operational as required under the water purchase agreement".

But Tuaspring had not been able to do so, PUB said in response to a letter that Sias president David Gerald sent the national water agency on March 26. It pointed out that the plant is "now at a stage where major renewal works are required".

Tuaspring was to supply up to 70 million gallons of desalinated water a day to PUB for 25 years from 2013, following an open tender awarded to Hyflux in 2011.

Tuaspring had also been "unable to produce financial evidence to demonstrate its ability to keep the Tuaspring Desalination Plant running for the next six months", PUB noted.

Mr Gerald had also asked PUB what its plans were for the desalination plant if it had to take it over.

PUB said yesterday that "its main priority is to quickly restore the (desalination plant) to good operating condition so that it is able to supply desalinated water reliably".

Hyflux faces the prospect of selling the Tuaspring Desalination Plant for zero dollars to PUB if it does not rectify defaults. Tuaspring will continue to own and operate the power plant, it added.

PUB said the desalination plant's purchase price is negative based on a current valuation. The price will be confirmed later "by an independent valuer in accordance with the water purchase agreement".

Tuaspring would in theory have to pay PUB a compensation sum in such a situation but the agency is willing to waive this as it recognises that it is "unlikely to recover the compensation sum", given Tuaspring's fragile financial state.

Tuaspring will remain liable for its loans and liabilities, such as funds owed to Maybank, the agency said.

PUB added that "the desalination plant had been and will likely continue to lose money for the next few years... PUB would have to incur costs to make good the plant and ensure that it operates reliably for its remaining lifespan".

PUB said that its takeover of the plant will "alleviate the pressure on the rest of the Hyflux Group, and also positively impact Hyflux's value and... the value of the Hyflux shares being offered".

The takeover is "beneficial to all stakeholders", including about 50,000 retail investors and 3,000 Central Provident Fund members who used their money to buy Hyflux ordinary and preference shares.

"Therefore, PUB's actions would be favourable to Tuaspring and should not be used as the basis for SM Investments' decision to withdraw from the restructuring agreement", it added.

Mr Gerald called on investors to attend the vote on Hyflux's rescue plan on April 5, noting yesterday that the restructuring will require stakeholder support to proceed.

"It would be a terrible shame if the plan fails and Hyflux is placed in liquidation because of apathy or indifference on the part of small shareholders who simply did not bother to turn up and vote," he said.

He also noted that SM Investments has remained the only party to show "any inclination to provide emergency funding for Hyflux".

The white knight investor represents "the only hope to stave off liquidation", though both Hyflux and SM Investments had yet to agree on how much investors should receive from the bailout plan, he said.

"If the company does get wound up, note that preference, perpetual and ordinary shareholders will very likely end up with nothing because once more senior claims have been paid, no money would be left and the company would in all likelihood cease to exist," Mr Gerald added.

A version of this article appeared in the print edition of The Straits Times on March 30, 2019, with the headline 'PUB agrees to give Tuaspring more time to remedy defaults'. Subscribe