Clash Over $2 Billion of Debt at Singapore's Hyflux Heats Up

(Bloomberg) -- Singapore’s troubled water treatment company Hyflux Ltd., formerly celebrated as a hallmark of entrepreneurship in better times, is set for a humbling week.

Creditors are due to file proof by Friday of the obligations that Hyflux owes them, putting the company’s S$2.7 billion ($2 billion) unsecured debt load under an even brighter spotlight. The firm this month unveiled a proposal to impose 75 to 90 percent haircuts on unsecured creditors, following a tumble triggered by an ill-timed expansion into energy in recent years.

Singapore’s debt market has inflicted deep losses on unsecured creditors since the oil-market slump in late 2013, as a myriad of companies followed shipbuilders and charterers into distress. Some Hyflux investors have banked on government help, given that the company owns the Tuaspring desalination plant deemed crucial to Singapore’s water supply. But those bets may be misplaced, some observers argue.

“From some of our conversations, many have invested in Hyflux based on the premise of government backing,” said Ang Chung Yuh, a fixed-income analyst at iFast Corp. in Singapore. “It’s a misconception.” While the asset is critical, the holding company isn’t, he added.

Hyflux hasn’t published its accounts since reporting a S$22.2 million loss in the first quarter of 2018. It has agreed to release its 2018 full-year financial statements by March 1 to enable creditors to evaluate its debt proposal, according to a court filing.

Why It Matters

  • Hyflux funded its business expansion with junior debt, some sold through ATMs; it counts some 34,000 mom-and-pop investors among its creditors, and angers abound
  • There have been petitions to vote against Hyflux’s proposal, as well as calls in private chat groups for state rescue at a time when general elections are around the corner
  • Even before Hyflux’s distress, some S$1.9 billion of local bonds had fallen into default since late 2015, according to Bloomberg data

Key Background

  • Hyflux investors, especially holders of junior debt, are calling for better terms and state intervention, at least in private chat groups. The government has said in parliament that it’s inappropriate to comment on the Hyflux debt situation, saying it’s “a commercial matter.”
  • The company obtained court protection in May 2018 to fend off creditors, and brought in a white knight in October.
  • Hyflux’s key asset is the Tuaspring plant, the largest in Southeast Asia; asset secured against loan from Malayan Banking Bhd
  • Net debt to Ebitda surged to 165 times in 1Q 2018 vs 3.9 times a year earlier: Bloomberg data
  • Market capitalization shrank to S$165 million when shares halted in May 2018; worth S$2 billion at its peak in 2010

Key Restructuring Terms

  • Hyflux seeks a S$400 million cash injection from Indonesian tycoons in exchange for 60 percent equity
  • Hyflux plans to convert debt into 36 percent of equity, shared by:
    • Bank lenders (S$717 million)
    • Medium-term note holders (S$278 million)
    • Trade claimants (S$11 million)
    • Contingent claimants (S$678m)
    • Perpetual securities holders (S$500 million)
    • Preference shares holders (S$400 million)
  • Shareholders will see their holdings diluted to 4 percent
  • NOTE: See cash distribution plan

Key Dates to Watch

  • March 1: Hyflux asks scheme parties to file proofs of claim by this date, and expects to publish its latest financial accounts
  • April 5: Scheme creditor meetings starting from noon local time to vote on the company’s debt proposal
  • April 11: Tentative date for court to sanction voting results
  • April 16: Target restructuring effective date, or soon after

Other Cases

  • Ezra: Zero to 2 percent recovery for unsecured bondholders
  • Ezion: Debt extension, coupon reduction, principal preserved
  • Nam Cheong: 5-20 percent recovery under cash-out options for sustainable debt
  • Rickmers: Liquidated, zero recovery for unit holders

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