Utico says its offer for stake in Hyflux now worth $535m

Deal for perp and preference shareholders is above $100m, says chief executive of UAE utility

Utico's CEO Richard Menezes says his rescue package is better than the aborted one from SM Investments.
Utico's CEO Richard Menezes says his rescue package is better than the aborted one from SM Investments.

Hyflux is under more pressure to sign a potentially life-saving deal after its white knight investor said its offer for an 88 per cent stake in the debt-laden water treatment company is now valued at $535 million, up from $400 million.

The new figure came yesterday from Utico chief executive Richard Menezes, who touted his rescue package as being better than the aborted one from SM Investments (SMI). He said "the equity valuation of (Hyflux) is set at $340 million, though the total deal value could be $535 million, higher than the failed $530 million deal with SMI".

SMI, an Indonesian consortium formed by Salim Group and Medco Group, offered a $530 million plan to help Hyflux fix defaults under its water contract but the deal was canned in April. That prompted national water agency PUB to step in.

Hyflux and Utico, a utility based in the United Arab Emirates, told the Singapore Exchange last week they are "progressing" towards a $400 million binding deal. This involves Utico taking an 88 per cent stake, with an investment of $300 million as equity and a $100 million shareholder loan.

In yesterday's statement, Mr Menezes said Utico's offer includes "a $400 million commitment to ensure Hyflux remains a going concern and to grow the business, along with further commitment to (its) retail perpetual securities and preference (PNP) shareholders".

He reiterated Utico's offer of a cash equivalent of a 4 per cent stake in the enlarged Utico group plus additional cash payouts to PNP investors. "It implies that the PNP deal is above $100 million. This (deal) could give the PNP shareholders 50 per cent of their first $2,000 to $3,000 as well as a cascade and staggered deal to the rest, thus offering them options to exit and hope for full redemption," he said.

Hyflux did not comment when asked if it has agreed to the offer.

Mr Menezes said Utico's offer to PNP investors is better than the one from SMI: "Hyflux's value today is at its lowest, akin to a distressed firm. Its recovery could take four to six years or longer.

"Utico has a much larger value than Hyflux had at its peak valuation. (SMI's offer of $27 million) and a 10.38 per cent share of a reorganised Hyflux is of no value without a company like Utico, which is in the same sector and a major player."

He also addressed concerns that Utico's offer of more than $100 million would not be sufficient, given that 34,000 PNP investors are seeking to recover $900 million.

"PNPs are unsecured and unguaranteed investors and their investments were driven by hope. There are no legal obligations, either. Offering PNPs exit and redemption is a moral and ethical obligation from us," Mr Menezes said.

He also shed light on what role Hyflux founder Olivia Lum and the firm's current management could have, saying: "(Hyflux) was extremely successful, save for some bad decisions. Utico intends to reshape and build with the experience and expertise of current management, including Olivia."

Hyflux will remain as a separate listed company, with Utico owning 88 per cent, he said. Utico also claims it has made a commitment to the Securities Investors Association Singapore (Sias) to list here.

But Sias president David Gerald disputed this, saying: "There is no 'commitment' by Utico that it would list in Singapore. There is no certainty as to whether a listing is on the cards and if so, what kind of assets Utico would inject into the listed entity."

Mr Menezes said both parties are aiming to enter into a binding deal with the approval of senior creditors, and will hold a town hall for both PNP and medium-term note holders before the next High Court hearing on Aug 2.

A version of this article appeared in the print edition of The Straits Times on July 17, 2019, with the headline 'Utico says its offer for stake in Hyflux now worth $535m'. Subscribe