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Fallen Singapore High-Flyer Starts Debt Restructure Process

Updated on
  • Water treatment firm says won’t pay bond interest on May 28
  • Hyflux founder was poster child for Singapore entrepreneurs

Hyflux Ltd., the Singapore water treatment and power firm, has started a court-supervised debt reorganization process to protect the value of its business after reporting unprecedented losses.

The group applied to the Singapore high court on Tuesday, seeking a six-month moratorium against certain actions including court proceedings against it. The filing under Section 211B of the local Companies Act comes with an automatic 30-day reprieve. Hyflux has also decided not to pay S$14.9 million ($11.1 million) of interest due on May 28 on its perpetual securities, some of which individual investors had bought through ATMs in Singapore two years ago.

“This is the first time we are seeing a bond sold to mom-and-pop investors through an ATM running into problems,” said Ezien Hoo, a Singapore-based credit analyst at Oversea-Chinese Banking Corp. “We expect such investors to take a hit as their securities are subordinated.”

Read more about the performance of Hyflux bonds

Olivia Lum

Photographer:Munshi Ahmed/Bloomberg News

Bloomberg News earlier reported that the group was planning to seek court protection to fend off creditors.

Hyflux last year posted its first annual loss since listing, and the losing streak has continued into the first quarter of 2018. The turnabout in fortunes for the company, whose founder Olivia Lum was a poster child for local entrepreneurs, adds to signs of pressures that smaller borrowers in the Singapore debt market face.

Prolonged weakness in the local gas market has resulted in depressed electricity prices, putting a strain on Hyflux’s finances, causing “short-term liquidity constraints in recent weeks,” the company said in the filing. The court relief will provide room for the group to work with advisers on the reorganization, which includes discussions with strategic investors and asset divestment, it said.

Hyflux has hired WongPartnership LLP as legal advisers and Ernst & Young Solutions LLP as financial advisers. It has also asked for its shares and securities to be halted from trading as its financial position remains unclear pending the outcome of the reorganization process.

“For homegrown successes like Hyflux whose business continues to be relevant for Singapore’s future economy, the enhanced restructuring regime is conducive to pursuing a swift and collaborative outcome,” WongPartnership said in an email statement. Hyflux will engage with stakeholders to preserve value, it added.

Singapore Restructuring

Hyflux said in a separate statement Wednesday that Group Chief Operating Officer Wong Lup Wai had stepped down to pursue personal interests. Wong, who was also group executive vice president, doesn’t have any unresolved differences with the board or other matters that need to be brought to shareholders’ attention, according a Singapore exchange filing.

The company has been in talks to sell a stake in its single-largest asset, the Tuaspring project, which combines Southeast Asia’s largest desalination plant with a gas turbine power plant. It’s also been negotiating a potential divestment of the Tianjin Dagang desalination plant.

The fact that Hyflux was able to win contracts in recent months could mean that its business, excluding Tuaspring, is not so dire and that the firm may just need time to recapitalize its balance sheet, according to OCBC’s Hoo.

Hyflux, which was worth nearly S$2.1 billion ($1.6 billion) at its peak in late 2010, now has a market value of S$165 million. It’s the second-worst performer on Singapore’s FTSE ST All Share Index this year, with a 39 percent decline, trailing only Noble Group Ltd.

Debt Balloons

The company said earlier this month it was in talks with potential investors to inject funds. Its net loss widened to S$22.2 million in the three months ended March 31, from a restated S$64,000 a year earlier.

Hyflux’s net debt surged to 165 times earnings before interest, taxes, depreciation and amortization as of March 31, from about 32 times at the end of last year, according to data compiled by Bloomberg. In addition to the coupon that it won’t pay next week on its perpetual securities, the company also has S$100 million of 4.25 percent bonds maturing in September.

Hyflux’s former success had won accolades for its founder, an orphan who left a career in pharmaceuticals to start her own business with S$20,000 raised from selling her car and apartment.

The company, which became Hyflux, won municipal contracts in Singapore and expanded into new markets like Malaysia, China and India. Lum was named to government bodies, including International Enterprise Singapore, and appointed as a member of parliament in a seat reserved for distinguished community members.

— With assistance by Denise Wee

(Updates with COO’s departure in ninth paragraph.)
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