SM Investments rejects restructuring leeway for Hyflux

Hyflux unveiled the status of its restructuring in response to SIAS’ demands.

SM Investments (SMI) will not agree to a variation of the terms of the restructuring agreement with Hyflux, in order to accommodate the termination of the water purchase agreement (WPA) with the Public Utilities Board (PUB). This is despite PUB’s argument that SMI cannot use PUB’s default notice to Hyflux as the basis for the decision to withdraw from the restructuring agreement with the embattled water treatment firm.

SMI also asserted another prescribed occurrence  - that will enable it to terminate the restructuring - to Hyflux on 25 March 2019 based on a notice from the Magtaa offtakers, Sonatrach SpA and L’Algerienne des Eaux, alleging certain defaults under the concession agreement for the Magtaa desalination plant in Algeria (Magtaa WSPA) and threatening to terminate the Magtaa WSPA in the event that these alleged defaults are not cured by 8 February 2019. Hyflux also has to resolve the occurrence within two weeks of notice.

However, Hyflux said in an announcement that whilst certain disagreements with SMI have “recently emerged,” the restructuring agreement remains in force and SMI has not stated that it will resile from its proposed investment.

Moreover, Hyflux will continue pursuing the restructuring agreement and will proceed to hold the scheme meetings on 5 April 2019 for the scheme proposed by the company and 8 April 2019 for the other schemes related to Hydrochem, Hyflux Engineering, and Hyflux Membrane Manufacturing. It will also hold an extraordinary general meeting (EGM) to approve the terms of the investment under the restructuring on 15 April 2019.

The embattled utility firm said these in response to an open letter by the Securities Investors Association Singapore (SIAS) demanding Hyflux to clarify the status of the restructuring deal with SMI as the company “is not giving confidence to investors that it will resolve all outstanding issues to keep the restructuring deal with SMI on track,” SIAS president and CEO David Gerald wrote.

Hyflux also went on to describe the other disagreements it had with SMI. The investor has asserted that it does not agree to the terms of the schemes, especially the commercial term that an aggregate cash amount of $272m will be used to fully settle the financial obligations specified in the restructuring agreement. Hyflux argued that they both agreed on the commercial terms for the restructured company before they were published on 16 February.

“The schemes scrutinised at the hearing before the High Court of the Republic of Singapore on 21 February 2019 (which the SMI’s representative attended), when leave was granted to convene the scheme meetings scheduled on 5 April 2019 and 8 April 2019, were premised on these same commercial terms. The revisions to the Hyflux scheme to accommodate the requests made in the 27 February SIAS letter, as well as amendments to the other schemes, do not vary these commercial terms,” Hyflux said.

Hyflux further argued against SMI’s claim that it cannot accommodate a termination of the WPA, as no prescribed occurrence has occurred as neither PUB nor the Magtaa offtakers have actually terminated their respective agreements with Hyflux.

“Any statement by the PUB that it will terminate the WPA if the defaults are not remedied within the stipulated cure period does not constitute a threat on the part of the company or Tuaspring to cease its business in the usual and ordinary course,” Hyflux said. Moreover, the WPA can only be terminated on 6 May 2019 if PUB has to exercise its right to terminate the WPA.

If SMI nonetheless seeks to wrongfully terminate the restructuring agreement, Hyflux can lay claim to a $38.9m deposit which was placed into escrow shortly after the execution of the restructuring agreement, it noted.

Hyflux added that it has been taking active steps to resolve the matters set out in the Magtaa offtakers’ notice.

Additionally, Hyflux has updated its company scheme to accommodate SIAS’ requests for holders of Perpetual Securities and Preference Shares to receive further payouts from the extinguishment of contingent claims. It also recalibrated the cash allocation in its other schemes to optimise recovery of the scheme parties.

Hyflux also will not be holding a third town hall meeting prior to the scheme meetings, “in light of the upcoming scheme meetings for the Hyflux scheme that will be held less than a fortnight from this announcement, and scheduling difficulties with SMI.”