It is finishing 2 projects and talking with creditors to improve cash flow.
Hyflux secured a six-month moratorium protecting it from creditors’ legal proceedings and a rescue financing of $200m to help it mend debt issues and restructure assets brought about by its cash crunch.
The six-month moratorium will cover Hyflux as a parent company and its four business operators: Hydrochem, Hyflux Engineering, Hyflux Membrane Manufacturing, and Hyflux Innovation Centre. The total liabilities of the five are currently at $727.5m, documents obtained by Singapore Business Review said.
The rescue financing will be used “not only for the costs of construction for the TuasOne WTE Project and Qurayyat IWP, but also for the Hyflux Group to continue to secure new projects for the future that require capital expenditures,” Hyflux CEO Olivia Lum said in a second affidavit filed in the Singapore High Court.
Seeking liquidity from energy projects
Hyflux is expecting fresh cash flow to come from new energy projects TuasOne WTE Project and Qurayyat IWP in order to keep it afloat. Lum said, “The main priority of the Hyflux Group is to unlock liquidity from existing sources so as to allow the continued construction of the TuasOne WTE Project and the Qurayyat IWP.”
Hyflux has attracted inquiries from potential rescue financiers for the two projects. It already executed seven non-disclosure agreements (NDA) and is negotiating more than 20 for financiers and strategic investors.
TuasOne WTE Project is expected to commence commercial operations by the end of May 2019. With this project, Hyflux operator Hydrochem is expected to receive net cash inflow of $291m from a bulk $423m from the Engineering, Procurement and Construction (EPC) contracts minus costs worth $132m.
It will be funded by Hyflux and sub-contractor Mitsubishi Heavy Industries (MHI). Through a liquidity support plan, funds must be extracted from Hydrochem and the loan for the project earlier than expected.
Lum added that the loan syndicate for the project is supportive towards the plan, but it requires Hyflux to specify how it will distribute the funds to Hydrochem to meet EPC costs for the TuasOne WTE Project.
Hyflux is not only relying on its TuasOne WTE Project. Hydrochem currently operates an 85%-completed Qurayyat IWP located in Oman which is expected to be finished in the near future for US$28m. It is expected to receive some US$33m from an EPC contract worth US$210m.
However, Hydrochem faced issues with the provision of EPC services and a dispute with a sub-contractor, causing the delay in the project’s completion and moved start of operations to September 2018.
The project is funded by a loan syndicate and capital from Qurayytat Desalination SAO (QDC), and, Lum said, the former is open to the earlier release of funds for EPC costs. The loan syndicate is also willing to give support to the liquidity plan as long as they specify how the funds will be distributed with project offtaker Oman Power and Water Procurement Company SAOC (OPWP).
Additionally, Hyflux is in discussions with OPWP on how to treat the liquidated damages caused by the delayed completion of the project.
Commenting on the project, CMC Markets sales trader Oriano Lizza said, "This is a short term revenue raising solution, which provides additional capital to buy more time in order to sell distressed assets, where revenue from their sale should be invested to complete the TuasOne waste-to-energy plant."
“I am confident that with the completion of the Qurayyat IWP (which will further raise the Hyflux Group's profile in the MENA region) as well as the completion of the TuasOne WTE Project (which sees the expansion of the Hyflux Group's business profile into the clean energy sector), more business opportunities will open up for the Hyflux Group in the future,” Lum said.
Six bank lenders approve 6-month moratorium
Previously, Hyflux has applied for court protection for 30 days, along with the moratorium and financing, as it went through the hearing for its reorganisation process. During this period, nine notifications of default have been issued by bank lenders of the operators, subjecting them to potential liabilities over $320m.
Maybank had on behalf of the syndicate issued a notification of event of default in relation to the TuasOne Loan, which relates to a drawndown amount of approximately $269m, which can potentially be accelerated. Other banks that provided guarantees, standby letters of credit (SBLC), and performance bonds sent the operators four demand letters and subjected them to more debt of $42.4m.
Lum said $380m of prospective liabilities are still subject to assessment.
Since the filing of the applications, Hyflux representatives and their advisers have engaged and met with creditors, including 29 bank lenders. This includes separate discussions held with the TuasOne Loan syndicate and Qurayyat Loan syndicate on possible liquidity support plans.
It also held an all-bank lenders' meeting, wherein six bank lenders have sent letters (some subject to certain conditions, caveats and information requests) supporting the applications for a moratorium and are willing to consider a proposal at a later stage.
The six identified lenders were: Mizuho, which holds $235.2m of Hyflux debt; KFW IPEX-Bank GmbH, which holds $136m; Bangkok Bank, which holds $115.6m; DBS, which holds $93.6m; Arab Banking Corporation, which holds $33.1m; and The Hongkong and Shanghai Banking Corporation Singapore Branch, which holds $4.4m.
Together, they hold $617.9m of debt, which is approximately 33.5% of Hyflux’s total bank debt. Lum said three of them support the six-month moratorium, whilst other three are in support of a moratorium for a "reasonable period of time" in place of the requested six-month period.
Lizza commented, "They have the support of their lenders after the announcement of the moratorium but a major concern that could derail their plans will be the ever increasing rate environment with a collective debt of $617.9m spread over six major banks."
Potential asset sales
Lum said the company aims to get a net receipt of approximately $1.33b from a $291m cash inflow from the TuasOne WTE Project EPC contract; the proposed sale of its interests in Tuaspring IWPP and Tianjin Dagang DP for $900m and $139.8m, respectively; and payments worth US$40m from receivables in its Magtaa Project EPC contract.
“The sales of these assets present a source of potential funds, which can substantially alleviate, or even cure, the Hyflux Group's temporary cash crunch,” Lum said. However, she clarified that the potential sale of Tuaspring IWPP and Tianjin Dagang DP will not necessarily occur within the moratorium period.
“It represents an intention to work towards such a sale within that period, bearing in mind that more time may be needed (depending on the circumstances) so as to secure a fair sale price that maximises value for all of the Hyfiux Group's stakeholders,” she added.
As a final note, Hyflux has been in constant communications with the Securities Investors Association (Singapore) (SIAS), and will organise town hall meetings with it for the noteholders under the MTN Programme, holders of the perpetual securities, their respective trustees, and the holders of the preference shares.
The townhall meetings are expected to take place after 19 June 2018.
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