Singapore’s water security is the only thing that matters and the main motivation behind water agency PUB’s announcement last night that it would take over Tuaspring’s desalination plant, should Hyflux subsidiary Tuaspring Private Limited (TPL) be unable to cure its defaults by April 5, observers said.
It has also agreed to waive any compensation it could have claimed from the Hyflux unit and is willing to purchase the plant for zero dollars.
PUB’s response came after TPL asked on Wednesday to clarify whether PUB will buy Hyflux’s largest asset – the entire Tuaspring Integrated Water and Power Plant – or just the Tuaspring Desalination Plant, upon termination of the water purchase agreement.
“There are no winners here. What’s important is to salvage the situation and ensure Tuaspring continues to run and provide water,” Associate Professor Lawrence Loh, director of the Centre of Governance, Institutions and Organisations at the National University of Singapore Business School, said.
Analysts said PUB’s announcement should also put to end to any hopes that retail investors of perpetual securities and preference shares have about holding out for a better deal. There is no better deal for now, because PUB will not be paying them anything, they said.
In fact, some believe even more unsecured creditors may vote in favour of the restructuring plan on April 5, assuming Hyflux’s white knight Salim-Medco consortium SM Investments (SMI) is still in the picture.
When asked yesterday, SMI said it had no comment on PUB’s latest move.
Hyflux on Monday revealed that SMI asserted its right to withdraw from a proposed restructuring deal on which Hyflux’s future depend on. The move by SMI comes two weeks after PUB warned that it will seize control of Hyflux’s Tuaspring plant unless it sees financial proof that the plant is able to continue operations for the next six months, among other things.
But SMI will not release any cash to Hyflux until Tuaspring’s operational and financial defaults are resolved.
Prof Loh pointed out that SMI not having to take over the water plant may be a good thing since it is now deemed a toxic asset because of its negative value.
“PUB’s move is not surprising especially after SMI issued a notice on Monday saying that PUB’s default notice is a showstopper,” he said.
“It now depends whether the power plant is attractive to SMI, which already controls PacificLight Power here. They will have to relook their numbers for the rescue offer. But the problem is there is over-capacity of power supply in the market,” he added. PacificLight is a generation company with an 800MW power plant on Jurong Island.
Analysts said the liquidation scenario is more likely now as time is running out for Hyflux to find another consortium or put together an even better scheme before its debt moratorium ends at the end of next month.
“Even if Hyflux manages to fix its defaults but the plan is rejected on April 5, SMI will walk and Hyflux will have to find an alternative that is even better than SMI,” Mr Ang Chung Yuh, manager of fixed income division at iFast, said.
Secured creditor Maybank’s chances of its recovering its $518 million secured loan are increasingly uncertain now if PUB were to take over Tuaspring, Mr Ang said. “I don’t know what Maybank can do to recover their loan which is secured against the plant. If the restructuring goes through, at least we know SMI will likely be involved in refinancing discussion for the Maybank loan.”
Prof Loh said that even if Hyflux is liquidated, Maybank may not recover all of its loan despite being first in priority, because it will depend on what they can recover through liquidation.
But the retail investors of perpetual securities and preference shares will likely be the ones to suffer the most, analysts said.
Said Mr Ang: “If liquidation is the confirmed outcome for Hyflux, then we will likely see these investors seeking sponsors for litigation costs to try to claw back whatever they can get. But lawsuits take years before they can get any results and they will have to prove gross negligence or fraud.”
Source: The Straits Times