Newspaper Advertisement and FAQs on the Hyflux Restructuring

VOTING ON 5 APRIL 2019 FOR SCHEME OF ARRANGEMENT FOR HYFLUX LTD

Hyflux – Ad on Restructuring Scheme

Hyflux – Ad on Restructuring Scheme_ZB

For FAQs on the scheme meeting voting, please refer to this link: https://www.hyflux.com/scheme-meeting-voting-faqs/


FAQS ON THE HYFLUX RESTRUCTURING

These FAQs address the common concerns and questions that have been raised including by the banks lenders, trade creditors, holders of the perpetual capital securities and preference shares (“P&Ps”) and the holders of the Series 008, 009 and 010 notes (“MTNs”) on the commercial terms under the scheme of arrangement of Hyflux Ltd (“Hyflux Ltd Scheme”). Unless otherwise defined, all definitions used here are adopted from the Hyflux Ltd Scheme. Please note that the claim values referred to are the adjudicated claim values and principal amounts for P&Ps. However, they may be amended subject to the adjudication results following, among other things, any determination by an independent assessor as may be appointed by a party disputing the results of the Chairman’s adjudication of a Proof of Claim.

The FAQs are broken down into 3 sections:

  1. The Restructuring. Questions 1-5
  2. Hyflux Ltd Scheme. Questions 6- 21
  3. Investment by SMI. Questions 22-26

The Restructuring

1. What entities will be proposing a Scheme of Arrangement (“Scheme”)?

The following four entities (“Scheme Entities”) will each be proposing a creditors’ meeting (“Scheme Meeting”):

  • Hyflux Ltd;
  • Hydrochem (S) Pte Ltd;
  • Hyflux Membrane Manufacturing (S) Pte Ltd; and
  • Hyflux Engineering Pte Ltd.

 

2. What are the requirements for each Scheme to be approved?

For each Scheme to be successful, it must be approved by a majority in number (i.e. more than 50% in terms of headcount) and at least 75% in value (“Requisite Majority”) of all classes of the Scheme Entities’ creditors that are present and voting. This includes votes of creditors who are physically at the Scheme Meetings, as well as creditors who are voting through proxies. Hence, every voter counts, irrespective of whether you are claiming S$1 or S$1,000.

 

3. If either of Hyflux Ltd Scheme or Hydrochem scheme fail, will the restructuring fail?

Yes. Both the Hyflux Ltd Scheme and Hydrochem scheme need to be approved by the requisite majority of scheme parties and sanctioned by the Court for the intended investment by the investor, SM Investments Pte Ltd (“SMI”), to take place.

 

4. What are the classes of creditors in the Schemes?

Hyflux Ltd

There are three classes of creditors that will be voting in respect of the Hyflux Ltd Scheme:

Class Description Voting threshold*^ Proxy Deadline Meeting
1. Unsecured Scheme Parties Facilities lenders, MTN noteholders, trade creditors and holders of contingent claims ·    more than 50% in headcount

·    at least 75% in value

2 April 2019, 12pm 5 April 2019, 12pm
2. Debt Securities Scheme Parties

 

Holders of the P&Ps 2 April 2019, 7pm 5 April 2019, 7pm
3. Subordinated Scheme Parties

 

Intercompany claimants

 

* Based on creditors that are present and voting at the meeting

^ You will be counted as 1 for purposes of headcount if (i) you hold securities directly with CDP (and attend and  vote in person or appoint a proxy to attend and vote on your behalf) and/or (ii) you hold securities with a relevant intermediary (as defined under section 181(6) of the Companies Act (Cap 50) of Singapore) and provide your personal details (e.g. name, address, NRIC etc.) when instructing your relevant intermediary to cast your vote on your behalf or appoint you as proxy (in respect of your own beneficial holdings).

Hydrochem (S) Pte Ltd

There are four classes of creditors:

  • General Trade Claimants
  • TuasOne Trade Claimants – trade creditors with claims related to the TuasOne project
  • Hyflux Membrane Manufacturing (S) Pte Ltd – claims in relation to the Tuas One project.These funds will in turn be distributed to the creditors of the Hyflux Membrane Manufacturing (S) Pte Ltd scheme (see below).
  • Subordinated creditors – Hyflux Group and related claimants

Hyflux Membrane Manufacturing (S) Pte Ltd

There are three classes of creditors:

  • General Trade Claimants
  • TuasOne Trade Claimants – trade creditors with claims related to the TuasOne project
  • Subordinated creditors – Hyflux Group and related claimants.

Hyflux Engineering Pte Ltd

There are two classes of creditors:

  • General Trade Claimants
  • Subordinated creditors – Hyflux Group and related claimants

There are no Contingent Claims in the schemes for Hyflux Membrane Manufacturing (S) Pte Ltd and Hyflux Engineering Pte Ltd, only trade debt and intercompany claims.

Hyflux Group and related claimants (with the exception of TuasOne Pte Ltd, which is the joint venture between Hyflux Ltd and Mitsubishi Heavy Industries Pte Ltd) will only receive S$1 for all their claims.

 

5.Why is shareholders’ approval required for the restructuring?

Approval of the ordinary shareholders of Hyflux Ltd is required for (1) the SMI investment, (2) the issuance of new shares to SMI and the Scheme Parties, (3)  the proposed buyback of the preference shares of Hyflux Ltd, and (4) the waiver of the rights of ordinary shareholders of Hyflux Ltd to receive a mandatory offer from SMI for the shares of Hyflux Ltd as a result of or pursuant to the SMI investment (“EGM Resolutions“).

Shareholders’ approval will be sought at an extraordinary general meeting (“EGM”) to be held on 15 April 2019. Preference shareholders will not be entitled to vote at the EGM.

A majority of more than 50% of the shares (present and voting) is required for the approval of the ordinary shareholders of Hyflux Ltd of the EGM Resolutions.

 

The Hyflux Ltd Scheme

6.What will the Unsecured Scheme Parties, P&Ps and ordinary shareholders get if the Hyflux Ltd Scheme is successful?

If the Hyflux Ltd Scheme is successful,

  • the Unsecured Scheme Parties will get to share S$232M in cash and 27% in shares of the post-restructured Hyflux Ltd.
  • the Debt Securities Scheme Parties (i.e. the P&Ps) will get to share S$27M in cash and 10.4% in shares (inclusive of the ordinary shares that Olivia Lum (“OL”) and the rest of the board of directors (the “Board”) are giving up to the P&Ps) of the post-restructured Hyflux Ltd.
  • The returns received by the directors for their P&P holdings will be redistributed to the P&Ps.
  • In addition, the higher ranking Unsecured Scheme Parties have agreed to share with the P&Ps, 90% of the cash allocated for contingent claims (from the S$232M allocated to the Unsecured Scheme Parties) that are extinguished. This is meant to increase the cash portion of the recovery for the P&Ps.
  • the ordinary shareholders of Hyflux Ltd will not receive any cash or new shares. They will retain their existing 785,284,989 shares, which will be diluted from 100% down to 4% of the enlarged share capital of the post-restructured Hyflux Ltd. In addition, the directors have agreed to give up all their 271,821,679 ordinary shares to the P&Ps under the Hyflux Ltd Scheme, which means that the remaining existing shareholders will hold 2.6% of the enlarged share capital of the post-restructured Hyflux Ltd, as opposed to having the entirety of their holdings wiped out (which would be the outcome in a liquidation of Hyflux Ltd).

 

7. What does it mean to the Unsecured Scheme Parties if the Hyflux Ltd Scheme is successful?

As an illustration, for every S$1,000, the Unsecured Scheme Parties will be entitled to approximately:

  • S$134 in cash;
  • 3,057 ordinary shares, with an implied cost of approximately 28.3 cents per share.

This means that if the share price of the post-restructured Hyflux Ltd recovers to beyond 28.3 cents and the Unsecured Scheme Parties are able to sell their shares at this price, the Unsecured Scheme Parties will not incur any loss in their principal.

 

8.What does it mean to the P&Ps if the Hyflux Ltd Scheme is successful?

As an illustration, for every S$1,000 principal, the P&Ps will be entitled to approximately:

  • S$30 in cash (this includes the returns received by the directors for their P&P holdings which will then be redistributed to the P&Ps);
  • Cash distribution may increase from S$30 up to S$74 – the P&Ps can share in the upside in cash returns when contingent claims are extinguished – 90% of the cash allocated for contingent claims that are extinguished will be shared between the Unsecured Scheme Parties and the P&Ps; and
  • 2,265 ordinary shares, with an implied cost of approximately 42.8 cents per share.

This means that if the share price of the post-restructured Hyflux Ltd recovers to beyond 42.8 cents and the P&Ps are able to sell their shares at this price, the P&Ps will not incur any loss in their principal.

As the P&P instruments do not have a fixed term of repayment in respect of principal, they contain equity features. The payment of shares to the P&Ps of approximately 10.4% is akin to a conversion from one form of equityto another form of equity. In comparison, the Unsecured Scheme Parties will have to give up their entitlement to principal repayment when they convert their Unsecured Claim to ordinary shares. The higher payout to the Unsecured Scheme Parties reflects this trade-off for the Unsecured Scheme Parties.

 

9. How was the allocation of the cash investment by SMI determined?

SMI is making a cash investment of S$400M and extending a shareholder loan of S$130M. This total investment and shareholder’s loan of S$530M is to be applied towards the full and final settlement of the financial obligations being schemed and the working capital needs of the Hyflux Group’s business.

From the S$530M:

  • S$259M will be distributed to the Unsecured Scheme Parties and P&Ps being schemed by Hyflux Ltd.
  • The balance S$271M will be used for the remaining schemes, the completion of ongoing projects and other working capital needs.

This is the result of active negotiations between the various stakeholders and their advisors. The following factors have been taken into consideration:

  • When a company is insolvent, the higher class of creditors (in this case, the Unsecured Scheme Parties) will be repaid in full before subordinated stakeholders (in this case, the P&Ps) are entitled to any repayment. The entire S$259M cash that is allocated for repayment of Hyflux Ltd creditors is not even able to fully pay off the S$1.7B owed to Unsecured Scheme Parties.
  • Hyflux Ltd’s financial advisor has estimated that under a liquidation scenario, the unsecured creditors (including contingent liabilities) will recover approximately 8.7% of their outstanding debt (estimated at S$2.0B) on a more optimistic scenario from the sale of assets of Hyflux Ltd. As the total debt owed to unsecured creditors (including contingent liabilities) of S$2.0B is not paid in full, the P&Ps will not be entitled to any recovery.
  • In the spirit of a win-win restructuring, the cash invested by SMI shall be allocated such that the Unsecured Scheme Parties and P&Ps will receive a similar incremental percentage recovery above what each party’s estimated recovery will be if Hyflux Ltd was placed under liquidation.

Under the Hyflux Ltd Scheme,

  • the proposed cash allocation between the Unsecured Scheme Parties and the P&Ps provided an incremental recovery of 4% above the estimated liquidation recovery of 8.7% for the Unsecured Scheme Parties and an estimated recovery of 3% for the P&Ps prior to adjudication of debt and exclusion of Excluded debt;
  • based on the post adjudication claims of the Unsecured Scheme Parties and Excluded Scheme Claims, the proposed cash allocation of S$232M to the Unsecured Scheme Parties represents an estimated recovery of 13.4% of the outstanding debt of S$1.7B (i.e. an incremental recovery of 7% above the estimated recovery of 8.7% in a liquidation), while the proposed cash allocation of S$27M to the P&Ps represents an estimated recovery of 3.0% of their outstanding amount (Principal of S$900M).

Please refer to the table in the response under Q11(C) for the sharing arrangement on extinguished Contingent Claims between the Unsecured Scheme Parties and the P&Ps.

 

10. What are the Contingent Claims under the Hyflux Ltd Scheme?

The Contingent Claims mainly comprise performance guarantees provided by Hyflux Ltd for any non-performance of contracts or liquidated damages as well as corporate guarantees provided by Hyflux Ltd to certain lenders of its subsidiary companies. These Contingent Claims may either be extinguished (or dropped off) if the contracts are satisfactorily carried out without any breaches or delays, or crystallised if the contracts cannot be fully or satisfactorily fulfilled.

 

11. What happens if any of the Contingent Claims do not crystallise?

(A) The Original Proposal

Based on Hyflux Ltd’s original proposal, if any Contingent Claims do not crystallise:

  • 80% of the cash allocation for that extinguished Contingent Claim shall be distributed to the remaining Unsecured Scheme Parties; and
  • 20% of the cash allocation for that extinguished Contingent Claim shall be distributed to Hyflux Ltd’s personnel who have contributed to the extinguishment of such Contingent Claim.

The rationale of allocating the 80% amongst the remaining Unsecured Scheme Parties and not shared with the P&Ps is because the Contingent Claims are part of the Unsecured Scheme Claims.

Similarly, if any P&P (e.g. OL and the Board of Directors) gives up his/ her rights under the Hyflux Ltd Scheme, less P&Ps will be sharing the cash allocation of S$27M. This will result in the remaining P&Ps getting a higher recovery and this benefit will not be shared with any other class of creditors (e.g. Unsecured Scheme Parties).

(B) Final Proposal

Pursuant to negotiations between the advisors, Hyflux Ltd has formulated a revised proposal. Based on this proposal:

  • 90% of the cash allocation for that extinguished Contingent Claim shall be distributed on a pro-rata basis between the Unsecured Scheme Parties and P&Ps; and
  • 10% of the cash allocation for that extinguished Contingent Claim shall be distributed to Hyflux Ltd’s personnel who have contributed to the extinguishment of such Contingent Claim. Hyflux Ltd has also confirmed that the individuals entitled to the 10% allocation will not include any person who is or was a member of Hyflux Ltd’s Board or senior management team on or prior to the Hyflux Ltd Scheme Effective Date.

(C) Comparison between returns under the original proposal and final proposal

The cash allocation and incremental recovery to the Unsecured Scheme Parties and P&Ps under the original proposal and final proposal is as follows:

Original Proposal Final Proposal
Unsecured Scheme Claims* P&Ps Mgt Unsecured Scheme Claims P&Ps Mgt
(A) All Contingent Claims crystallised

Liabilities* / P&Ps

Sharing of S$259M

% incremental recovery***

 

1,914

232

3.4%

 

 

900

27

3.0%

 

 

 

 

 

**

 

 

 

 

 

 

(B) Adjudicated Contingent claims (excluding Excluded claims) crystallized

Liabilities / P&Ps

Sharing of S$259M

% incremental recovery ***

 

 

1,684

232

5.1%

 

 

900

27

3.0%

 

 

 

 

1,734

232

4.75%

 

 

900^

27

3.0%

 

 

(C) 50% Contingent Claims extinguished

Liabilities / P&Ps

Sharing of S$259M

% incremental recovery ***

 

1,345

223

7.9%

 

900

27

3.0%

 

9

 

1,372

209

6.5%

 

900

45

5.08%

 

 

5

 

(D) 100% Contingent Claims extinguished

Liabilities / P&Ps

Sharing of S$259M

% incremental recovery ***

 

1,006

213

12.5%

 

900

27

3.0%

 

19

 

1,010

180

9.1%

 

900

70

7.8%

 

9

*Total pre-adjudicated liabilities

**  Percentage returns under Final Proposal would not be applicable as Unsecured Scheme  Claims have been adjudicated

*** Over liquidation analysis recoveries

^    The figures used for P&Ps refer to principal only

The final proposal represents a compromise to achieve a win-win position for both the Unsecured Scheme Parties and the P&Ps. In particular:

  • It allows the P&Ps to participate in any cash upside that may arise as a result of the extinguishment of all future Contingent Claims. Unlike the original proposal where the P&Ps are only entitled to a fixed 3% cash recovery (representing S$27M cash), the final proposal now entitles the P&Ps to recover up to 7.8% cash (representing approximately S$70M cash) if all Contingent Claims are extinguished;
  • The final proposal takes into consideration the higher payment ranking of the Unsecured Scheme Parties in a liquidation. It builds in the element of recovery under the liquidation scenario for both the Unsecured Scheme Parties and the P&Ps.

 

12. How is the share allocation between each class of creditors/stakeholders determined? How many shares will each category of stakeholders receive under the Hyflux Ltd Scheme?

SMI proposed an investment of a total of S$530M comprising:

  • S$400M to subscribe for a 60% equity stake in Hyflux Ltd; and
  • S$130M as a shareholder’s loan.

This suggests an implied value of approximately S$667M for Hyflux Ltd (being S$400M divided by 60% interest).

Similar to the cash allocation, the 40% equity stake in Hyflux Ltd has been allocated between the Unsecured Scheme Parties, P&Ps and existing ordinary shareholders based on active negotiations and based on the following factors:

  • When a company is insolvent, the higher class of creditors (in this case, the Unsecured Scheme Parties, will be repaid in full before subordinated stakeholders (in this case, the P&Ps) are entitled to any repayment. The entire S$259M cash that is allocated for the Hyflux Ltd Scheme and 40% shares (representing an implied value of approximately S$267M) are not able to fully pay off the S$1.7B (based on adjudicated claims and excluding Excluded claims) owed to the Unsecured Scheme Parties.
  • In the spirit of a win-win restructuring, the 40% equity interest has been allocated on the principle that the P&Ps should get approximately double what the ordinary shareholders will get, and that the Unsecured Scheme Parties will get approximately double what the P&Ps will get.

The final proposed share allocation between the Unsecured Scheme Parties, P&Ps and ordinary shareholders as well as the number of shares to be issued to each class of creditors/stakeholders are as follows:

% of enlarged share capital No. of shares allocated
SMI 60% 11,779M
Unsecured Scheme Parties 27% 5,301M
P&Ps 10.4% 2,039M
Existing equity 2.6% 513M
Total 100% 19,632M

The existing ordinary shareholders will not be issued any new shares. Their existing approximately 513M shares (excluding the Board’s shares that will be paid to the P&Ps) will constitute 2.6% of the enlarged share capital of Hyflux Ltd.

With this allocation, the P&Ps will be issued new ordinary shares in Hyflux Ltd representing 4 times that of the existing ordinary shareholders, while the Unsecured Scheme Parties will be issued new ordinary shares in Hyflux Ltd representing approximately 2.6 times that of the P&Ps.

 

13. What is the recovery of each class of creditors/stakeholders under the current Hyflux Ltd Scheme?

The current Hyflux Ltd Scheme, if successful, will entitle the Unsecured Scheme Parties and the P&Ps to the following cash and shares.

Unsecured Scheme Parties P&Ps Existing Equity
Outstanding S$1.7B S$900M
Cash S$232M S$27M
Shares 27% 10.4% 2.6%
Implied equity value S$180M S$69M S$17M
Recovery (cash and shares) S$412M S$96M S$17M
Recovery (%) 23.8% 10.7%

 

The Unsecured Scheme Parties will receive 27% of the shares in the enlarged share capital of Hyflux Ltd with an implied value of S$180M. The estimated recovery including cash and shares has an implied value of S$412M which is an estimated recovery of 23.8%. This represents approximately 15.1% higher than a liquidation scenario.

The P&Ps will receive 10.4% of the shares in the enlarged share capital of Hyflux Ltd with an implied value of S$69M. The estimated recovery including cash and shares has an implied value of S$96M which is an estimated recovery of 10.7% (as compared to a nil recovery under liquidation scenario).

The existing ordinary shareholders will not receive cash or new shares under the Hyflux Ltd Scheme. With 513M shares in issue (excluding the existing shareholdings of the Board), and assuming an average market price of 40 cents per share (being mid-way between the high of 62 cents per share and low of 21 cents per share over the last two years), their theoretical investment cost is likely to be approximately S$205M (i.e. S$0.40 x 513M).

 

14. If one or more of the Schemes is/are not successful, what is the consequence?
Is Hyflux Ltd and its related entities (collectively, the “Hyflux Group”) or SMI going to revise its proposal?

The Restructuring Agreement can be terminated by SMI if the Schemes for Hyflux Ltd and Hydrochem (S) Pte Ltd fail or if all the requisite approvals required are not obtained by 16 April 2019. SMI has not agreed to any variation of the Restructuring Agreement. There is no alternative proposal to make to the stakeholders. No new investor has come forward with any alternative offers.

If the Restructuring Agreement is terminated, once the court ordered moratorium ends on
30 April 2019, any creditor can proceed to enforce their individual claims against Hyflux Ltd including winding up Hyflux Ltd. The current proposal remains the most viable alternative to liquidation, as it allows many of our P&P investors to see recovery even when the higher ranking creditors are not repaid in full.

 

15.What if the Hyflux Ltd Scheme does not achieve the Requisite Majority for any class of creditors?

If one class does not clear the Requisite Majority, the Hyflux Ltd Scheme will fail. However, in such an event, the company or creditors from the other classes can apply to Court to cram down on the dissenting class, if the requisite 75% in value and more than 50% in number is achieved on an overall Hyflux Ltd Scheme basis. However, the Court must be satisfied that it would be fair and equitable, and does not discriminate unfairly between classes for such cram down to be granted. This is also a new provision under the Companies Act (Cap 50) which has not been tested before and there is no guarantee as to the outcome if a cram-down application is made.

If the Hyflux Ltd Scheme fails and there is no successful cram down, Hyflux Ltd is likely to be liquidated following creditor enforcement after the moratorium ends on 30 April 2019.

 

16.In a liquidation scenario, what is the likely return to the unsecured creditors and P&Ps?

(A) Unsecured creditors

Hyflux Ltd’s financial advisor has estimated that Hyflux Ltd’s share of the estimated liquidation value/forced sale value of these subsidiary and associated companies is likely to be in the range of approximately S$75M and S$171M. The S$75M to S$171M recovery from Hyflux Ltd will be shared on a pari passu basis amongst the unsecured creditors (including contingent liabilities). The resulting recovery rate ranges from approximately 3.8% to 8.7%.

In arriving at the range of S$75M and S$171M, the following factors have been taken into consideration:

  1. There are no assets held by Hyflux Ltd, except for investments in subsidiary companies and associated companies as well as intercompany debts.
  2. Given the current situation faced by the Hyflux Group, Hyflux Ltd can only recover the liquidation value of the cost of investments and intercompany debts if these subsidiary and associated companies are either wound up or sold off.
  3. In the liquidation of the subsidiary and associated companies:
    1. All secured assets will be sold and the sale proceeds will be paid to secured creditors first (e.g. Maybank in the case of Tuaspring);
    2. All preferential debts (cost and expenses of winding up, wages, taxes, etc) will be repaid next. Any surplus will be shared equally between all unsecured claims (i.e. on a pari passu basis);
    3. All contracts entered into with the counter parties are likely to be cancelled as the subsidiary companies will not be able to fulfill these contracts if it is liquidated. This may result in claims from these counter parties for breach of contract;
    4. All on-going projects will not receive new funds to complete the project. Under such scenario, these projects will have to be fully written-off;
    5. All completed projects that are currently running are likely to be disposed at forced sale value. In such a situation,
      • the assets (e.g. Tuaspring) will be sold at forced sale value – even assets that are not loss making
      • the sale price is based on what the highest bidder will offer and not on the cost of building the assets;
      • the secured liabilities may be partially paid off, with the unpaid portion written-off (e.g. Secured loan of approximately S$518m of Maybank in the case of Tuaspring);
      • there is not likely to be much left over from the sales proceeds to be distributed amongst the unsecured creditors;
      • the P&Ps are unlikely to receive any part of the sale proceeds as they are not at the assets owning entity level;
      • the new assets owner will be signing a fresh agreement with the relevant authorities and continue to run the assets, with no obligation towards the unsecured creditors (including contingent liabilities), P&Ps or the ordinary shareholders.

(B) The P&Ps

The P&Ps will have no recovery in a liquidation as they rank below the unsecured creditors (including contingent liabilities) in the priority for payments under a liquidation scenario and will not be entitled to any recovery until the unsecured creditors (including contingent liabilities) are fully paid.

In order for the P&Ps to be entitled to any recovery, Hyflux Ltd needs to realise an additional amount of approximately S$1.8B over and above the estimated recovery of S$171M.

 

17. Will the government step in to rescue Hyflux/Tuaspring in the event that the Hyflux Ltd Scheme is not successful?

We cannot comment on what the government will do. That said, the government has made the following public statements on the issue of Hyflux Ltd’s restructuring:

  1. On 20 November 2018, the Minister for the Environment and Water Resources (“MEWR”) made the following comments:
    1. Public Utilities Board’s (“PUB”) key interest is to safeguard Singapore’s water security and will not allow it to be affected;
    2. PUB has adequate measures to ensure Tuaspring and Singspring remain in operation and supply is not disrupted; and
    3. it is not appropriate to comment on the restructuring agreement as it is a commercial matter and restructuring discussions are still ongoing.
  2. On 26 February 2019, the Monetary Authority of Singapore (“MAS”) and MEWR issued a joint response to a Facebook message sent by a creditor to the Prime Minister. This joint response included the following comments:
    1. all investments carry risks;
    2. businesses can come under financial stress and are not immune to defaults; and
    3. MAS, MEWR and PUB are unable to intervene in Hyflux Ltd’s reorganisation process which is a commercial matter.

In addition, on 5 March 2019, PUB issued a default notice to Tuaspring to remedy defaults arising under the Water Purchasing Agreement between PUB and Tuaspring (“WPA”). PUB requires Tuaspring to fully resolve all defaults within 30 days from 6 March 2019 (this being the default cure period which ends on 5 April 2019), failing which, upon the expiry of the default notice period, PUB will exercise its right to terminate the WPA and take control of the plant. On 18 March 2019, Hyflux Ltd announced that SMI issued a notice to Hyflux Ltd asserting a Prescribed Occurrence had arisen as a result of the PUB notice dated 5 March 2019 and giving Hyflux Ltd 2 weeks (until 1 April 2019) to cure the Prescribed Occurrence. Though Hyflux Ltd disputes that any Prescribed Occurrence has taken place, SMI may assert a right to terminate the Restructuring Agreement.

Since Hyflux Ltd’s announcement on 18 March 2019, PUB announced on 21 March 2019 that in the event that PUB terminates the WPA, it will only take over the desalination plant at a purchase price of zero dollars and waive the likely compensation sum payable by Tuaspring.

On 29 March 2019, Tuaspring received a letter from PUB setting out PUB’s agreement to extend the default cure period to 30 April 2019, save that such extension shall be immediately rescinded upon the occurrence of any of the following events prior to 30 April 2019:

  1. Approval for Hyflux Ltd’s Scheme is not obtained at the meeting of its creditors on 5 April 2019;
  2. Approval for Hyflux Membrane Manufacturing (S) Pte Ltd’s, Hydrochem (S) Pte Ltd’s or Hyflux Engineering Pte Ltd’s schemes of arrangement is not obtained at the meetings of their respective creditors on 8 April 2019;
  3. The High Court does not sanction any of the schemes of arrangement referred to in sub-paragraphs (a)-(b) above (collectively, the “Schemes”), pursuant to s 210(3AB)(c) of the Companies Act (Cap 50) (for this purpose, the rescission shall take effect immediately notwithstanding the filing of any appeal against the High Court’s decision not to sanction any of the Schemes);
  4. The approval as set out in paragraph 5.1(c) of the Restructuring Agreement entered into between SMI and Hyflux Ltd and dated 18 October 2018 (the “Restructuring Agreement”) is not obtained at the extraordinary general meeting of Hyflux Ltd;
  5. Any of the steps for completion, as set out in paragraph 4 of the Restructuring Agreement, is not performed or completed on or before 16 April 2019; or
  6. The Restructuring Agreement is terminated for any reason.

Hence, if the Hyflux Ltd Scheme is not approved at the Scheme Meeting on 5 April 2019, the extension of the default cure period immediately ends and PUB is entitled to issue a termination notice in respect of the concession agreement.

 

18. What should the scheme creditors do in light of the recent developments relating to Tuaspring, PUB and SMI?

The scheme creditors should still go ahead with the voting process, ie submit proxy forms by
2 April 2019 or attend the Scheme Meeting on 5 April 2019 for the Hyflux Ltd Scheme. If the Hyflux Ltd Scheme passes, there is still a chance that Hyflux Ltd will survive as PUB has granted an extension of time (which is conditional on certain events such as the Hyflux Ltd Scheme being approved by creditors) and/or SMI may choose to proceed with the completion of the intended investment (they have the discretion to waive any conditions to the investment in the Restructuring Agreement).

 

19. Why can’t Tuaspring be put out for sale? Can any surplus sale proceeds from the sale of Tuaspring, after paying of the secured loan, be distributed to the P&Ps?

Tuaspring has been put up for sale. However, the earlier bids for Tuaspring have not been successful. The best bid was insufficient to settle the approximately S$518M secured loan owed by Tuaspring to Maybank.

Tuaspring also has unsecured liabilities of approximately S$1.5B. The bulk of this liability is a shareholder’s loan of approximately S$790M and intercompany payables owed to Hyflux Ltd which amount to approximately S$172M.

Any proceeds from a sale of Tuaspring will first be used to meet Maybank’s secured loan of about S$518m. If there are any surplus proceeds from the sale of Tuaspring after fully repaying the secured loan, such surplus will be paid to Hyflux Ltd and distributed to the Unsecured Scheme Parties. The Unsecured Scheme Parties will need to be fully repaid before any funds can be returned to the P&Ps (see response at question 16 above in relation to payment priority). The P&Ps do not have any direct claim against Tuaspring or right to the sale proceeds from a sale of Tuaspring.

 

20. Is it possible for Hyflux Ltd to continue to survive if it foregoes its loss making subsidiaries (e.g. Tuaspring) and continue with its profit making subsidiaries? Will the Hyflux Group survive if all the Unsecured Scheme Parties and P&Ps agree not to be repaid for the next few years?

Hyflux has noted that foregoing its loss making subsidiaries will alleviate the pressure on the rest of Hyflux group. However, without a restructuring and new investment, Hyflux Ltd will still not survive. Hyflux Ltd is a holding company and its assets are its investments in and receivables from its subsidiaries. Hyflux Ltd does not have fixed assets and operational cash-flows and is thus dependent on returns from its subsidiaries to meet its own financial obligations.

The Hyflux Group requires the injection from SMI for even its profit making subsidiaries to continue their operations given the current liquidity crunch it faces. Any returns will then flow up to Hyflux Ltd.

 

21. What has the Chairwoman, Olivia Lum (“OL”), contributed in this restructuring? Does this restructuring benefit her?

OL has offered all her ordinary shares and her entitlement from her holdings of perpetual securities and preference shares in Hyflux Ltd to the P&Ps as part of the Hyflux Ltd Scheme.

In addition, the Board of Hyflux Ltd have also volunteered to give up all their ordinary shares and their entitlements from their holdings in perpetual securities and preference shares to the P&Ps as part of the Hyflux Ltd Scheme.

OL will not benefit whether or not the restructuring is successful.

Even if the Hyflux Ltd Scheme is successful, as OL has contributed all her ordinary shares and entitlements from her holdings in perpetual securities and preference shares to the P&Ps, she will not be entitled to any benefit under the Hyflux Ltd Scheme. In fact, she would have lost her entire equity interest in Hyflux Ltd by giving it all to the P&Ps.

If the Hyflux Ltd Scheme fails and Hyflux Ltd is liquidated, all the ordinary shares, perpetual securities and preference shares will be worthless as they rank behind the unsecured creditors (including contingent liabilities) (see response at question 16 above in relation to payment priority).

Accordingly, whether the Hyflux Ltd Scheme succeeds or fails, OL will not benefit from it.

 

Investment by SMI

22. What is SMI putting in?

SMI will be investing a total of S$530M as follows:

  • S$400M to subscribe for a 60% equity stake in Hyflux Ltd; and
  • S$130M as a shareholder’s loan.

 

 23. Why was SMI selected?

Hyflux Ltd’s financial advisors conducted a selection process which yielded 16 potential investors. Several offers were received as a result of this process with different valuations and conditions imposed. These offers were evaluated based on the best value realisable, potential synergies between the potential investor and Hyflux Ltd, certainty of completion (e.g. that the offer is not conditional upon, among other things, further due diligence or performance targets), and the potential investor’s financial capability.

Under the Restructuring Agreement, there is an exclusivity period during which Hyflux Ltd is unable to entertain other proposals. This exclusivity period lapsed on 17 December 2018 but there has not been any other proposal made by investors. Accordingly, the proposed investment by SMI is the only proposal on the table. In any event, any proposal must come with funding.

 

24. Why shouldn’t all money that is invested by SMI be used to pay the Unsecured Scheme Parties and P&Ps?

From the S$530M,

  • S$259M will be utilized for distribution to the Unsecured Scheme Parties and P&Ps being schemed by Hyflux Ltd.

The balance S$271M will be used for the remaining schemes, the completion of ongoing projects and other working capital needs.

If all of the money that is to be invested by SMI is used to pay the Unsecured Scheme Parties and P&Ps, Hyflux Ltd will not receive funds it requires to sustain its operations, cure any defaults, and continue its projects.

In addition, any investor injecting funds would reasonably expect a return on their investment which will require Hyflux Ltd to fund and complete ongoing projects.

 

25. Why can’t the Unsecured Scheme Parties and P&Ps be kept at their respective current form? Why should they be issued ordinary shares instead?

  • Given that Hyflux Ltd is currently in a net liability position (after the company made an impairment provision), even if the Unsecured Scheme Parties and P&Ps are kept at their current form, these financial obligations will not be repaid and the P&Ps and MTN noteholders will have a negative value.
  • Further, Hyflux Ltd requires fresh funds for working capital purposes to survive. Without the investment by SMI or any other investor, the Hyflux Group’s debts cannot be restructured and Hyflux Ltd will likely be placed into liquidation. Under such circumstances, the recovery for the unsecured creditors (including contingent liabilities) will be minimal and the investments by the P&Ps will have to be fully written off.
  • For any investor to inject fresh funds, it is not unusual for it to make the investment conditional on all debts and obligations being fully and finally waived or extinguished.
  • New ordinary shares will be issued to compensate such scheming of debts/obligations. Unsecured Scheme Parties and P&Ps will be given ordinary shares in a post-restructured company with a strong balance sheet (with minimal liabilities) that is backed by a financially strong major shareholder.
  • With a restructured balance sheet, the ordinary shares will carry positive value as compared to the current securities which currently carry a negative value.

 

26. Can SMI withdraw its offer?

Based on the Restructuring Agreement, SMI can choose not to proceed with its investment if, amongst other conditions, the proposed Schemes are not sanctioned by the High Court of Singapore. If SMI withdraws its offer, Hyflux Ltd will not receive any injection of fresh funds and will likely be placed in liquidation after the moratorium ends on 30 April 2019 and creditors start enforcing their individual claims.

SMI has asserted that there are Prescribed Occurrences which entitle SMI to assert a right to terminate the Restructuring Agreement. Although Hyflux Ltd has disputed this and has been advised that SMI will be legally obliged to complete the investment if the conditions precedent are met, Hyflux Ltd cannot control what SMI does (regardless of the legality of the same). Neither can Hyflux Ltd speculate on what SMI’s commercial considerations and intentions are.

Updated 31 March 2019