Approximately 34,000 retail investors in troubled homegrown water treatment firm Hyflux are at risk of losing up to 90 per cent of their capital in the company’s new restructuring plan.
Bloomberg reported on Tue (12 Mar) in addition to the potential losses of junior securities holders, senior securities holders and banks will most likely lose around 75 per cent of their capital invested in Hyflux.
Earlier this month, Hyflux had reportedly mentioned the adjustment of its restructuring strategy in a bid to assist its retail investors, including scaling-down incentive plans for staff for completing projects and future payout sharing by creditors.
42-year-old entrepreneur Li Meicheng, one of the junior securities holders who had channelled their savings into S$900 million of junior debt to fund Hyflux’s growth, told Bloomberg that amendments made to the restructuring plan “hardly moved the needle”.
Similarly, 50-something homemaker Violet Seow, a shareholder and bond holder in Hyflux, told Bloomberg that she will most likely be voting against the new deal, as “Hyflux may not even survive that long for retail investors to collect any recovery”.
“We feel abandoned and sacrificed,” she lamented, adding: “The new investor isn’t a white knight when it only wants the assets but not the debt”.
The S$1.1 billion Tuaspring, one of Hyflux’s energy generation and water desalination plants, was dubbed as one of Singapore’s “national taps”, and was even endorsed by the head of the Public Utilities Board (PUB) and two Ministers, who had called Tuaspring “the latest milestone in Singapore’s water journey” with a “unique and cost-efficient design”.
Even Singapore’s own sovereign wealth fund Temasek Holdings was formerly Hyflux’s business partner and one of its equity holders, Bloomberg reported.
Bloomberg noted that Temasek Holdings did not hold any shares prior to leaving the company fully in 2005.
However, the sour fate facing Tuaspring and Hyflux has led the Government to brand the decline as “a commercial matter”, with the PUB serving a notice of default to Tuaspring’s owner for its operational and financial lapses, according to Bloomberg.
Retail investors such as Mr Li, who owns Hyflux perpetual notes and preference shares, had criticised the government’s move.
“I’m very disappointed that the government has decided to take a tough stance instead of offering a helping hand to an iconic Singapore company,” he said.
“This is another dagger in the chest for retail investors.”
In response to the criticisms, a PUB spokesperson told Bloomberg that its “decision to issue a default notice is to ensure the asset is secured and continues to produce water” for the Republic.
Director of Centre for Governance, Institutions and Organizations at NUS Business School in Singapore Lawrence Loh told Bloomberg that Hyflux’s downfall “is really a wake-up call for the Singapore financial sector” with regards to “how we promote such novel and risky instruments, the role of financial intermediaries and the education of the investing public”.
A Monetary Authority of Singapore spokesperson responded to Bloomberg‘s queries regarding the issue, stating: “As a listed company, Hyflux is required under SGX’s disclosure rules to provide investors with up-to-date, material information such as its financial condition and prospects.
“MAS and SGX continue to monitor the situation closely, including ensuring that Hyflux actively engages its investors, and provide regular and timely updates to the market on its restructuring plan,” added the spokesperson.
Hyflux to hold meeting with creditors early next month, will hold voting on issuance of new shares to Indonesian conglomerate Salim Group and energy firm Medco Group
Hyflux will be holding a meeting with its creditors on 5 Apr as a part of its financial restructuring process.
The meeting will comprise two classes of creditors: Firstly, unsecured creditors, including medium-term noteholders and 29 banks; secondly, holders of perpetual securities and preference shares.
Channel NewsAsia reported that the voting is likely to take place during two separate meetings on the same day for each creditor class.
At least 50 per cent in number and 75 per cent in value of each creditor class must approve the scheme before 5 Apr in order for it to pass.
“If one class fails, the scheme fails,” Hyflux said, according to The Straits Times.
In the event that the scheme receives the green light from both classes of creditors, an extraordinary general meeting will most likely be convened with ordinary shareholders to vote on the issue of new shares to SM Investments before 16 Apr.
More than 50 per cent of Hyflux’s ordinary shareholders are required to vote “yes” for the issue of new shares to SMI, a consortium of Indonesia’s conglomerate Salim Group and energy giant Medco Group.
Additionally, Hyflux will be holding a town hall meeting with its shareholders on 13 March.
Hyflux’s reorganisation plan entails the following:
- Approximately 34,000 registered holders of Hyflux’s perpetual securities and preference shares will receive a total of $27 million in cash and a 10.26 per cent share of the company after the restructuring plan is implemented, with them being owed $900 million by the firm;
- For every $1,000 invested, a holder of Hyflux’s perpetual securities and preference shares will receive only $106.54, or an implied return rate of 10.7 per cent, which will be distributed in the form of $30.15 in cash payout and $76.39 of implied value in the firm’s shares;
- Unsecured creditors who do not hold such securities and shares will receive a total of $232 million in cash and 27 per cent of shares;
- Medium-term holders are expected to receive $246.35 for every $1,000 they have invested, or an implied return rate of 24.6 per cent, which will be distributed in the form of a cash payout of $138.72 and $107.63 of implied value in the company’s shares; and
- Around 60 per cent of Hyflux’s share capital will be handed to SMI, which has agreed to inject $530 million in the firm.