FROM the get-go, the restructuring of Hyflux had placed especial attention on the 34,000 perpetual and preference share (PnP) holders.

 

Every effort was made by the Securities Investors Association (Singapore) (Sias) to stave off a judicial management (JM) or liquidation scenario, in hopes of a rescue deal.

 

The PnP holders might have been worried for the fate of Hyflux' s existing projects and offtake agreements, in the event of a JM or liquidation. And they might have assumed that they would get nothing if a strategic investor was not allowed to swoop in and swallow the company whole.

 

The court' s decision to put the debt-laden water treatment firm under JM on Monday would, therefore, be unwelcome.

 

Sias' s president and CEO David Gerald on Tuesday told The Business Times that it objected to the JM, especially since there has been an offer made by a new party: Strategic Growth Investments (SGI).

 

" Since Hyflux has said that they will appeal by this Friday, we will await the final decision of the appeal court when it is fixed, before commenting further," he said.

 

Rescue still possible

 

In fact, the situation is not as bad as some PnP holders think.

 

JM is a rescue procedure to restructure a distressed company' s debt. No part of this process precludes the judicial manager from working with a strategic investor. Neither does it mean shareholders will certainly receive nothing.

 

Hyflux' s listing status alone could be valuable, said Justin Yip, partner at Withers KhattarWong.

 

Certainly, PnP holders rank low on the distribution of receipts from the JM process. But there is also no certainty that they would have recovered anything if Hyflux had continued to seek a rescuer.

 

At Monday' s hearing, lawyer Eddee Ng, who represents a group of Hyflux' s creditor banks, noted that Hyflux has so far favoured investors who agreed to keep the existing board in place.

 

Some of these same board members are now being probed by the authorities.

 

With a third-party judicial manager in place, an objective investor search can begin.

 

Aurelio Gurrea-Martinez, assistant law professor and head of the Singapore Global Restructuring Initiative at Singapore Management University, said a JM could even bring new rescue deals to the table in the form of going concern sales. These sometimes do not take place because of certain competing interests.

 

Protecting interests of all

 

The JM process will, therefore, be fairer to all parties. It will also facilitate investigations of transactions and directors' actions, which will support the confidence of any potential investor.

 

If, on the other hand, the JM process does not turn up any investors or buyers, investors should not blame the process. More likely, the business was not economically viable.

 

Said Prof Gurrea-Martinez: " The role of insolvency law is not saving non-viable businesses but making sure that the assets of these businesses are reallocated towards more productive activities that can generate jobs, wealth and growth."

 

PnP holders, too, should consider this need to allocate resources efficiently - whether those resources are their own or those of others. Other investment opportunities await, and they may be better off seeking them out instead.

HYFLUX has been placed under judicial management (JM) following the High Court' s rule on Monday, putting an end to a more than two-year-long saga of debt moratorium.

 

Borrelli Walsh has been appointed interim judicial managers for the troubled water treatment company, and will take over its operations with immediate effect. This means that Hyflux' s board of directors will no longer be in charge, including founder and chief executive Olivia Lum.

 

The move comes after Justice Aedit Abdullah said the debt moratorium had been in place for a " very long time" , and " must come to an end at some point" .

 

During Monday' s hearing, Hyflux' s lawyer Nish Shetty, from Clifford Chance Asia, had started off by again requesting an adjournment to the JM application that was filed by the UWG (unsecured working group of creditors), saying more time was needed to give the " SGI (Strategic Growth Investments) offer the opportunity to progress" .

 

Last Friday, a detailed term sheet from SGI, the fourth white knight in Hyflux' s saga, was filed to the Singapore Exchange, showing the American fund manager' s proposal to acquire and privatise Hyflux, including all its subsidiaries, as well as its ownership interest in plants and other businesses.

 

However, Justice Aedit said he was " not persuaded that sufficient grounds have been made out for any further extension" .

 

Of the decision, Mak Yuen Teen, associate professor of accounting at the NUS Business School, where he specialises in corporate governance, said it was a " good decision" , and that " the longer this dragged on, the less likely of a successful outcome under the current board in terms of bringing an investor" .

 

" A JM is likely to place more emphasis on the priority of claims which, while disadvantageous to stakeholders such as the holders of the prefs and perps, is unfortunately the way it should be in the event a company becomes insolvent," he said.

 

Robson Lee, a partner in Gibson Dunn' s Singapore office, was also in favour of the decision, and noted that as a result of the moratorium extensions, Hyflux has " incurred huge costs and expenses including substantial professional fees that are draining the company' s reserves" .

 

Monday' s court hearing lasted nearly four hours, and was first held through a virtual hearing on Zoom before Justice Aedit ordered Mr Shetty and Tan Kok Quan Partnership lawyer Eddee Ng, who represents the UWG, to meet him physically in court.

 

In making his case for the extension, Mr Shetty said the SGI proposal " offers a significantly better recovery for the creditors than winding up and the JM" .

 

Creditors such as the medium-term note holders (MTN), DBS and the Securities Investors Association (Singapore), or Sias, were also in favour of the extension, noting the terms of SGI' s offer, whereby it will not continue with the transaction should Hyflux enter into JM.

 

However, Justice Aedit was sceptical of the details of the term sheet being shared only at the eleventh hour.

 

" Every time on the eve of the hearing&hellip seems a bit suspicious doesn' t it?" he questioned Mr Shetty.

 

He added: " I' ve given fair warning previously that I need to see something concrete&hellip This is as far away from concrete as dough mixture for a cake would be."

 

Representing the UWG, Mr Ng was of the same opinion, saying that " (they) strenuously opposed the adjournment" .

 

He noted that the fact that Hyflux had chosen to focus on investors like Aqua Munda and Pison, " who don' t even have a clear plan&hellip to engage the perps and the prefs underscores&hellip that it is clearly an agenda here in place" .

 

" They are naturally inclined to dealing with investors who only want to keep the board in place, who don' t want a JM."

 

Under the SGI deal, executive chairman Lum will transition to a non-executive chairperson of the advisory board, while a new CEO will oversee the restructuring plan.

 

Mr Ng added that an objective investors' search can only occur when a JM has been put in place.

 

Following the court' s decision, Hyflux requested a stay of the JM order, but was denied by Justice Aedit.

 

Separately, lawyers representing other stakeholders such as Sias and DBS had raised concerns in court that the appointed JMs should not be closely connected to any stakeholder group of Hyflux, and should be an independent party.

 

Borrelli Walsh is the financial adviser to the UWG, which comprises Mizuho, Bangkok Bank, BNP Paribas, CTBC Bank, KfW, Korea Development Bank and Standard Chartered Bank.

 

In response, Justice Aedit said while he does not want to hold off the appointment of the JMs, he will allow parties to apply to court for additional or substitute JMs, and will " take that for another day" .

 

Nonetheless, Gibson Dunn' s Mr Lee is confident that having JMs in place " will ensure an orderly dissolution of the affairs and sale of the assets of the company if it is no longer possible to give the company a new lease of life through any white knight rescue" .

 

Senior Counsel Thio Shen Yi, joint managing partner of TSMP Law, said that having independent professionals " will help restore the trust deficit and allow genuine progress" .

 

" Though SGI has said it will not continue with its Hyflux-rescue plans if Hyflux enters judicial management, that may not be immutable," he added.

 

When contacted for comments, Utico chief executive Richard Menezes told The Business Times: " We are available to see if we can take part in asset purchases or otherwise."

 

Beleaguered water treatment firm Hyflux has come under judicial management (JM) after a High Court ruling yesterday, following a marathon debt restructuring effort that has yet to put money on the table for creditors.

 

Mr Hamish Alexander Christie and Mr Patrick Bance of Borrelli Walsh, the restructuring firm advising the unsecured working group (UWG) of 19 banks that hold more than $931 million of Hyflux debt - were appointed the judicial managers and took over the firm' s operations yesterday.

 

Sources told The Straits Times that representatives of Borrelli Walsh were at Hyflux' s premises yesterday to take control, change locks and check computer servers.

 

Earlier in the day, Hyflux' s lawyers and some creditors supported a further extension of the debt moratorium in view of a plan proposed by American fund manager Strategic Growth Investments (SGI) to acquire and privatise the company in a deal that would include a cash injection of $208 million.

 

But Justice Aedit Abdullah said that he was " not persuaded that sufficient grounds have been made out for any further extension" .

 

" A debtor-in-possession restructuring... must come to an end at some point. A moratorium mechanism is not intended to be continued indefinitely."

 

It is meant to " give temporary reprieve" for companies to work out viable rescue plans, " but this has not been the case here" , he stressed.

 

While acknowledging there have been " various complications" in Hyflux' s restructuring, Justice Aedit said he was " not persuaded that the current SGI proposal is a basis for further continuation of the moratorium" .

 

" I must emphasise that the moratorium has been in place for a very long time... So what may have been sufficient for an extension in the past... may not be sufficient when numerous extensions have been given. It is against that context that I must weigh the application for JM order and I' m satisfied that the statutory objectives... have been made for the appointment of JM," he ruled.

 

Despite being given 12 extensions of the debt moratorium over 21/2 years, the Hyflux board was no closer to getting a deal that puts money on the table, and some creditors feared the group' s remaining value was being dissipated. Compounding matters, Hyflux and its current and former directors are now under probe for suspected false and misleading statements and breaches of disclosure rules.

 

Justice Aedit also denied Hyflux' s request for a stay of the JM order pending its appeal.

 

Responding to Hyflux lawyer Nish Shetty' s query if " time has been squandered" , Justice Aedit said: " No, it' s not about squandering... If any of you have had kids in (national service)... they would have ROD by now... You can get a degree in some countries in shorter time."

 

OTHERS ' BRUSHED ASIDE'

While we see Hyflux has engaged Pison ... which insisted on no judicial management and for existing management to be kept in place, genuine investors like OUE and Keppel, which are interested in investing in the business of Hyflux and (SingSpring), have been brushed aside as ' lock and sell' deals.

 

MR EDDEE NG, LAWYER FROM TAN KOK QUAN PARTNERSHIP, WHO REPRESENTS THE UNSECURED WORKING GROUP OF 19 BANKS THAT HOLD MORE THAN $931 MILLION OF HYFLUX DEBT.

" Convince me why after two years, I need to give more time when there' s nothing concrete on the table, no one is rushing to the bank to pour money in?" he added.

 

Among those supporting another extension were the medium-term note holders that are owed $265 million, creditor DBS and the Securities Investors Association (Singapore), or Sias. Lawyers for all three groups cited concerns that SGI will terminate the deal should Hyflux go into JM, because it has said that would " likely result in a prolonged process" .

 

Mr Ashok Kumar of BlackOak, who represents the medium-term note holders, sought a month' s extension, arguing that " if SGI walks away, there' s no plan on the table" .

 

But Tan Kok Quan Partnership lawyer Eddee Ng, who represents the UWG, opposed this, saying that Hyflux had ignored investors OUE and Keppel Infrastructure Trust that were recommended by Borrelli Walsh, while failing to deal with Pison, the investment vehicle of Indonesian magnate Johnny Widjaja, on an " arms-length basis" .

 

Pison in July made a formal cash offer for the debts of Hyflux' s bank lenders, note holders and other senior unsecured creditors via a " reverse Dutch auction" .

 

Said Mr Ng: " While we see Hyflux has engaged Pison... which insisted on no JM and for existing management to be kept in place, genuine investors like OUE and Keppel, which are interested in investing in the business of Hyflux and (SingSpring), have been brushed aside as " lock and sell" deals."

 

Despite the regulatory investigations into potential offences for incorrect accounting, Pison still wants to keep the existing board in place. " Any arms-length investor should naturally be cautious," Mr Ng pointed out.

 

Further, he cited the depletion in Hyflux' s assets and available cash, but said those numbers are " confidential" .

 

" It is deeply ironic that Hyflux complains that a JM would be expensive. But whatever fees the JM charges will pale in comparison to the adviser fees chalked up by the company," he said.

 

Mr M. Anthony, 69, a retiree who bought 25,000 units of Hyflux' s 6 per cent perpetual securities, is resigned to the fact that his investment has " gone up in smoke" .

 

He hopes that " if there has been any wrongdoing or breaches of the law, the judicial managers will ring the alarm bells very loudly... for all to hear" .

THE Securities Investors Association (Singapore), or Sias, said that it is ready to work with all investors to support Hyflux preference shares and perpetual securities (P& P) holders, after a new rescue offer for the beleaguered water treatment company.

 

American fund manager Strategic Growth Investments (SGI) - Hyflux' s fourth and most recent suitor - has proposed to buy and privatise Hyflux with an investment of some S$208 million in cash.

 

Said Sias president and chief executive David Gerald in a media statement: " Although the SGI term sheet is non-binding and conditional, it contains a proposal to resolve the debts due to all stakeholder groups, including the P& P holders.

 

" Sias' position is that it is prepared to work with any and all investors to help provide information to the P& P holders and facilitate a restructuring once a binding and unconditional offer is made in such time that the court may allow."

 

Under a detailed term sheet issued by SGI last week, P& P holders will get S$41.3 million in cash and a share of new convertible securities in Hyflux. Mr Gerald noted in his statement that the cash payout marks a 4 per cent recovery for the P& P holders.

 

While SGI will not go ahead with its offer if Hyflux moves into judicial management, Hyflux has backed the restructuring offer, dubbing SGI a " preferred investor" and touting the " single-payment cash recovery &hellip and participation in the company' s future growth" .

 

On top of several tranches of outstanding notes, Hyflux also owes some S$900 million to about 34,000 P& P retail investors - a longstanding sticking point in restructuring talks.

THREE days before the Hyflux judicial management order application is due to be heard in Court, the water-treatment firm on Friday evening shared in-depth details of the term sheet of Strategic Growth Investments (SGI), and backed its proposal, calling it " comprehensive" and saying it " appears to address the key concerns raised by the various stakeholders" .

 

The term sheet from SGI, the fourth white knight in the long-running saga in the attempted rescue of the firm, was filed to the Singapore Exchange on Friday. It showed SGI' s proposal to acquire and privatise Hyflux, including all its subsidiaries, as well as its ownership interests in plants and other businesses.

 

The deal will be structured as an approximately S$208 million cash purchase of newly issued Class A common equity and convertible securities, which can be converted to Class B common equity upon meeting of performance hurdles.

 

Class B common equity is non-voting, and on a fully diluted, fully converted basis, will not make up more than 16 per cent of the total common equity.

 

Hyflux agreed to conduct exclusive negotiations with SGI for a period of 60 days starting Nov 10 during this period, it will not negotiate with new investors other than those it is already in talks with.

 

SGI said it will make a " good-faith effort" to consummate the transaction as soon as commercially possible, although the Covid-19 pandemic may likely cause unexpected delays.

 

On issuance of the Class A shares and convertible shares, about S$155 million will be paid to the creditors, about S$53 million will be placed in an account under Hyflux' s control for the benefit of contingent claimants, and S$60 million will be injected into the company as working capital.

 

Of the S$208 million, perpetual capital securities and preference share holders will get S$41.3 million MTN holders will get S$26.2 million banks and facilities will get S$56.8 million other creditors will get S$14.8 million contingent claimants will get S$53 million, and trade creditors, S$15.8 million.

 

If the deal happens, SGI will look to " augment" the executive leadership and replace the entire board. Hyflux' s executive chairman Olivia Lum will transition to being a non-executive chairman of the advisory board, and a new chief executive will oversee the restructuring plan.

 

In his letter, Michael Hong, chief investment officer of SGI, said: " We have observed that previous letters of intent (LOI) by other Hyflux suitors more closely resembled expressions of interest that lacked specifics. In our opinion, those previous letters did not indicate serious intent and are fundamentally different from our LOI."

 

But SGI said it will not continue with the transaction if Hyflux enters into judicial management (JM), because a JM process will likely result in a prolonged timeline it is unwilling to spend additional time and resources and incur additional advisory fees in a protracted transaction process.

 

Moreover, a JM process will also likely result in increased hostilities among stakeholders, leading to bad publicity and other complications, it said. There will also be uncertainty regarding the continuity of existing management, whereas its plan requires the continuity of key management, especially for business-development purposes, and for the management to work with the new CEO that SGI will bring in.

 

Hyflux threw its weight behind the deal, saying: " In particular, it offers single-payment cash recovery upon completion of the transaction and participation in the company' s future growth.

 

" The company supports the restructuring proposal that is set out in the SGI term sheet and will use its best endeavours to work with SGI as the preferred investor to facilitate the adoption and implementation of the proposal by the various stakeholders on a timely basis."

 

HYFLUX has received a term sheet for a negotiated transaction from American fund manager Strategic Growth Investments (SGI), the company said in an exchange filing on Tuesday night.

 

The term sheet is regarding the proposed reorganisation and restructuring of Hyflux and its other affiliated companies by certain investment funds managed directly or indirectly by SGI.

 

The beleaguered water treatment firm said it is considering the content of the term sheet and expects it will need further clarification and details from SGI. It added that it will make the appropriate announcements as and when there are any further material developments on this matter.

 

Last month, Hyflux announced that it received a formal expression of interest from SGI to invest at least S$204.78 million.

 

Hyflux said in July this year that a then-unnamed North American fund manager with " a strong track record of investing in infrastructure, technology and real estate globally" was keen to invest.