Hyflux rebuts SM Investments’ allegations on third project

A Singapore 10-dollar note Photo by Leslie Shaffer

Troubled Singapore water infrastructure player Hyflux on Thursday rebutted fresh allegations from its now jilted white knight investor, SM Investments, saying the Indonesian consortium shouldn’t have been surprised by the deal termination.

That was after SMI issued a statement to Singapore media saying it was “surprised” by Hyflux breaking the engagement as the consortium was waiting for disclosure of material information it had requested multiple times.

SMI also pointed to a threat to a third major project, in addition to concerns over the Tuaspring and Magtaa projects, according to a CNA report.

But in a filing to SGX late on Thursday, Hyflux rebutted those claims in strong terms.

“The investor cannot possibly be ‘surprised’ by the termination of the restructuring agreement when the basis for doing so was the investor’s repeated refusal to commit to making the investment necessary for the restructuring,” Hyflux said in the filing.

Hyflux added that it had warned SMI multiple times that the company would be entitled to cancel the deal if the investor didn’t provide a written commitment.

“Regrettably, the investor, in a letter from its lawyers dated 4 April 2019, declined to provide the written confirmation sought,” Hyflux said.

Third project

Hyflux said SMI’s concerns over a third project related to 30 percent-owned SingSpring Trust.

SingSpring Trust’s majority owner, Keppel Infrastructure Fund Managment (KIFM), had asked Hyflux on 29 March  to confirm that KIFM’s buy-out right — which entitles KIFM to buy all or part of Hyflux’s stake — would not be affected by the restructuring plan, Hyflux said in the filing.

Hyflux said it provided the confirmation, adding that KIFM’s letter does not indicate it intended to exercise the buy-out rights, which it isn’t obligated to do.

“Accordingly, there is no ‘threat to a third major project’ as asserted by the investor,” Hyflux said. “The investor, who had been legally advised at all times, had been provided with the relevant agreement since 25 September 2018 and has therefore all along, even prior to the restructuring agreement, been well aware of KIFM’s buy-out rights which KIFM has been entitled to exercise in the event of the company convening a scheme meeting.”

In addition, Hyflux rebutted SMI’s claims concerning requests for material information, saying it was provided.

Hyflux also noted that despite asking multiple times, SMI didn’t provide an explanation of how the information it requested or received would require reassessing the Singapore company’s working capital needs.

Hyflux pointed to the 16 April deadline for the restructuring deal, adding that despite SMI being aware there wouldn’t be time to accommodate any changes to the settlement amounts if that deadline wasn’t postponed, SMI not only failed to postpone the deadline, but also wouldn’t agree to any changes of terms.

“Moreover, the investor had, for close to a month, rebuffed all attempts made by the company to meaningfully engage the Investor on what exactly its concerns over the company’s working capital needs were,” Hyflux said.

In October, SM Investments, which is a consortium of the Salim Group and the Medco Group, entered a binding agreement to invest S$530 million for a 60 percent stake in Hyflux, which had filed for court protection in May, saying the oversupply of gas in Singapore’s market had resulted in depressed electricity prices, which hit earnings in 2017 and drove losses in the first quarter of 2018.

In addition, the company said in May that its plan to divest the Tuaspring project in Singapore and the Tianjin Dagang plant in China had taken longer than expected.

Wasting no time

Hyflux appeared to be wasting no time in getting back into the marriage mart after the breakup.

David Gerald, president and CEO of Securities Investors Association (Singapore) or SIAS, which has been facilitating talks between stakeholders and the company, said in an emailed statement that it called upon all stakeholders to give Hyflux “time and space” to work out an alternate deal to avoid liquidation.

“I had called [Hyflux CEO] Olivia Lum to determine whether there is an alternative solution that can be presented to the investors and creditors,” Gerald said in the email. “According to her, the board will quickly re-engage with previous interested parties who had shown keen interest and were bidding for Hyflux with SMI. She said that the board needs some time to negotiate with interested parties.”

Gerald noted that if the company goes into liquidation, retail investors and perpetual security holders “will lose everything.”

Correction: On Friday, Hyflux issued a statement correcting the date it said the investor was provided with the SingSpring agreement. The correct date is 25 September 2018. 

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