What Hyflux’s Restructuring Agreement Means for Investors

Timothy Ang  |   28 Nov 2019  |    68 views

Hyflux’s restructuring agreement with Utico comes as a ray of sunlight through the clouds for its creditors and investors. On Wednesday, the Group confirmed a S$400 million rescue plan with Utico, the largest full service private utility company in the United Arab Emirates. Upon completion of the plan, Utico will own a 95% stake in Hyflux after subscribing to S$300mn worth of new Hyflux shares, half of which will be paid for in promissory notes and/or preference shares in a Utico affiliate. A remaining S$100 million will be injected into Hyflux for working capital purposes.

Here is the breakdown of how the S$400 million will be utilized:

  • S$250 million will be used for the settlement of unsecured financial debt, contingent debt and/or trade debt (other than Subsidiaries TradeDebt) of around S$1.6 billion as well as S$271 million owed to medium term noteholders
  • Up to S$50 million to be used to repay debt securities holders, including preferential share and retail perpetual bond holders
  • The remaining balance will be intended for
    • the payment of the Subsidiaries Trade Debt
    • the working capital needs of the Group;
    • the payment of the amounts payable to professional advisers; and
    • the business growth needs of the Group.

In order for the restructuring agreement to proceed, some key conditions will have to be met within 6 months of the agreement, including but not limited to:

  • Approval and acceptance of the listing of the new shares on the main board of SGX-ST
  • Confirmation from the Securities Industry Council that Utico and its parties shall not be obliged to make an offer for Hyflux
  • Holders of shares at an extraordinary general meeting approval of the issue and allotment of new shares, and the whitewash resolution waiving their rights to a takeover offer
  • Agreements of the final amounts for the full and final settlement of trade debts owed to trade creditors in accordance with the terms of the restructuring agreement, as well as discharge or redemption of unsecured financial debt, preference shares, perpetuals, contingent debt, trade debts
  • The necessary approval, consent and waiver being obtained from the National Environment Agency for the issuance of the New Shares which will result in a change in control under the Waste-to-Energy Services Agreement dated 26 October 2015 entered into between the National Environment Agency and TuasOne Pte. Ltd.

Barring key conditions, full details of the conditions can be found here on SGX.

Utico’s chief executive Richard Menezes aims to complete the restructuring by the first quarter of 2020, while having Hyflux’s shares resume trading by that time as well. He also stated that Utico itself plans to list on the SGX within the next two years, with Hyflux remaining as a separate company.

What Does This Mean for Debt Securities Holders?

Preference shares and perpetual securities holders will be given 2 options under the restructuring scheme:

Option 1:

To receive an upfront payment in cash of up to 50 per cent of their holdings in these debt securities, capped at S$1,500. The total amount paid out under this option will be S$50 million.

Option 2:

To receive up to 50 per cent of their holdings in these debt securities, capped at S$1,500, but paid out over a two-year period in five equal instalments, together with interest of 1.25% per annum on such amounts which remain outstanding. As an illustration, an investor owed S$1,500 will be paid $18.75 per annum of interest under this option.

An additional cash amount will be also be paid out under option 2 depending on Utico’s listing on the SGX:

  • If shares of Utico or an affiliate are listed within two years of the deal’s completion date, this additional cash payout will be either S$50 million or the cash equivalent of 4 per cent of the issued share capital at the listing price, whichever is higher.
  • If such a listing does not occur within two years, the amount will be S$50 million.

The total amount paid out under option 2 will be about S$100 million.

Investors may choose between a prompter recovery of funds (option 1) or a higher recovery amount (option 2) based on their preference.

Medium term note bondholders will be paid pro rata from the S$250 million allocated to cover Unsecured Financial Debt, the Contingent Debt and/or Trade Debt (other than the Subsidiaries Trade Debt).

S$125 million will be paid within seven business days after the completion date, and the remaining S$125 million will be paid by the Promissory Notes due date (18 months after the completion date) together with interest on such amount at a rate of 1.5% per annum.

The recovery rate for medium term notes has yet to be confirmed. Investors may look forward to learning their recovery amount in due course.

What Does This Mean for Shareholders?

The issuance of new shares would have a dilution effect on Hyflux’s current share value. As Utico intends to obtain a 95% stake in Hyflux after the new private placement, an estimated 14.92 billion new shares may have to be issued based on the current shares outstanding of 785 million shares. This would bring the total shares outstanding to about 15.7 billion shares.

Assuming a total net asset value of S$300 million based on Utico’s subscription amount, each share would have a net asset value of about S$0.02. Hyflux’s last traded price stood at S$0.21 before being suspended.

Bottom Line

As it stands, the restructuring agreement has yet to be finalised and details are expected to be released in due course. Medium term note holders may look forward to learning the recovery rate for their bonds. On Friday, Hyflux is scheduled to the give the Singapore High Court a progress update, which will determine if there will be an extension to its debt moratorium beyond its December 2 expiry.

For many investors, this agreement comes as a possible closure to a long ordeal.

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