UPDATE: Hiap Seng Engineering gets up to S$16M investment from Vibrant-led group

Singapore five-dollar note Photo by Leslie Shaffer

This item was originally published on Thursday, 9 December 2021 at 22:48 SGT; it has since been updated to include comments from Vibrant Group.

Hiap Seng Engineering‘s judicial managers have entered a non-binding term sheet with an investor group led by an associate company of Vibrant Group for an up to S$16 million cash injection, according to a filing to SGX Thursday.

The investors are Vibrant Equities –which is 40 percent-owned by SGX-listed logistics, real estate and financial services company Vibrant Group, 30 percent-owned by Kuah Kian Hua and 30 percent-owned by Khua Kian Ann Vincent — and Tian Yaun, the filing said.

Khua Kian Hua and Khua Kian Ann Vincent are the brothers of Vibrant Group’s majority shareholder, but the two don’t hold shares in Vibrant, the filing said. Tian Yuan is CEO of CGC Group, a construction and infrastructure company.

Hiap Seng said it has been working with the judicial managers to improve processes, resulting in lower overhead and leaner operations.

“We warmly welcome the proposed investment by the Vibrant-led investor group,” Richard Tan, CEO of Hiap Seng, said in the statement.

“Their proposed investment in Hiap Seng validates the strides the company has made in streamlining our operations, giving us a clearer focus on delivering quality services to our esteemed clientele. When the investment is completed, Hiap Seng will be able to grow again,” Tan said.

Eliminating debt

The cash injection, over two tranches, will be part of a restructuring exercise to eliminate Hiap Seng Engineering’s debt, the filing said.

The tranches will include the investors subscribing for S$8 million in new shares, and a grant of S$8 million in unlisted and transferable options to subscribe for new shares, the filing said.

Vibrant Equities will invest S$6 million and Tian Yuan will invest S$2 million in the first tranche, the filing said.

The proceeds of the first tranche will be used to settle outstanding financial liabilities with the key principal banker, Hiap Seng said.

Part of the restructuring — which will involve unsecured creditors, key management and shareholders — will involve seeking the unsecured creditors’ approval to swap a portion of the amount owed to them for a stake in the company, the filing said.

If the creditors accept new shares and the new subscription shares are issued, Vibrant Equities will hold 35.3 percent and Tian Yuan will hold around 11.8 percent of Hiap Seng, the filing said.

Options for second tranche

The options issued in the second tranche will be exercisable for up to two years from when the transactions are completed, with the pricing the same as the subscription shares for the first 12 months, then at a 10 percent premium to that price for the following 12 months, the filing said. The proceeds from the full exercise of the options will be used for working capital needs, Hiap Seng said.

After the restructuring is complete, Hiap Seng Engineering said it plans a rights issue to raise up to S$3 million, the filing said.

“This is to allow existing shareholders to participate in the recapitalization of the company. Current key management team will undertake to subscribe S$1 million worth of shares in the rights issue as a show of their commitment to the company,” Hiap Seng Engineering said.

The funds will be used to improve services through investments in additional workers and equipment, and the company will also explore tapping the investors’ resources to extend freight and logistics services to clients, particularly in the oil and gas segment, Hiap Seng said.

Vibrant Group

In a separate statement, Vibrant Group noted its portion of the total consideration for both the subscription shares and the options would be S$4.8 million, if the options are fully exercised. The consideration will be paid in cash and funded internally, Vibrant Group said.

“The group believes that the proposed transaction is in line with its corporate strategy to expand its logistics business initiatives, including in the offshore oil and gas sectors where Hiap Seng was a leading service providers, and the group believes that Hiap Seng may possibly enable the group to pursue opportunities and growth in this sector,” Vibrant Group said in the statement.

Judicial management since September 2020

The company has been under judicial management since September 2020. In its results for the fiscal first quarter ended 30 June 2020, Hiap Seng said “the group is presently in financial distress due to difficulties faced with its liquidity,” and that it was unable to continue as a going concern.

At the time, Hiap Seng had cited the impact of the Covid-19 pandemic on dampening oil demand, and leading to an oil-price plunge.

“The group observed a significant shrinkage in the number of plant construction projects, lower bids and capital expenditure, thinner margins and a general belt tightening policy of project owners. Additionally, it’s various partners and stakeholders were increasingly seeking delays, deferments and various compensations,” Hiap Seng had said at the time.

The restructuring will be subject to shareholder and regulatory approval, the filing said.