Hyflux, the Singapore water treatment firm, announced that it had started a court-supervised reorganization process in a statement issued on Tuesday evening, confirming rumours after it suspended trading of its shares and related securities on Monday.
The move will give the company some space to negotiate with strategic investors, while seeking to optimize operations and maintain cash flows, the statement also stated. The company had appointed Ernst & Young Solutions LLP as a financial adviser and WongPartnership LLP as legal adviser.
Hyflux suffered its first annual loss last year since listing, attributing losses in its energy business to an oversupply of gas that in turn depressed electricity prices. The reversal in fortunes for Hyflux hints of pressures that smaller borrowers in the Singapore debt market face.
Credit analysts interviewed pointed out that a debt workout of some sort was unavoidable as it was short-term debts they were facing and they would still need to maintain cash to their bond covenants. That Hyflux was still able to continue winning contracts in the past few months therefore indicates that business, excluding its single-largest asset Tuaspring which Hyflux is seeking to sell a stake, is not in distress. The firm probably just more time to recapitalise.
Other than the Tuaspring project -a combination of Southeast Asia’s largest desalination plant with a gas turbine power plant, negotiations are ongoing for a potential divestment of the Tianjin Dagang desalination plant.
Hyflux now has a market value of S$165 million. At its peak in late 2010, it was worth nearly S$2.1 billion.
Hyflux said earlier this month it was in talks with potential investors to inject funds. Net loss incurred widened to S$22.2 million in the three months ended March 31, from a restated S$64,000 a year earlier. It is the second-worst performer on Singapore’s FTSE ST All Share Index this year, with a 39 percent fall.
Singapore updated its corporate insolvency framework last year after the Singapore bond market faced nearly $1 billion of defaults since November 2015, as stated in a speech by Law Minister K. Shanmugam in August. The changes, incorporating elements of the U.S. Chapter 11 system, were passed by parliament in March last year. One of the amendments now gives protection to companies seeking an arrangement with their lenders, allowing a court to block creditors from filing winding-up petitions or seizing pledged assets while negotiations take place.