SINGAPORE: The Singapore High Court has granted an application by a group of bank creditors to place troubled water treatment firm Hyflux under judicial management.
The judicial management application was filed by an unsecured working group (UWG) of creditors made up of seven banks, namely Mizuho, Bangkok Bank, BNP Paribas, CTBC Bank, KfW, Korea Development Bank and Standard Chartered Bank. The UWG holds 55.56 per cent of the senior unsecured debt of Hyflux.
Under judicial management, a court appoints independent managers to run a financially distressed company in place of existing management.
In this case, restructuring firm Borrelli Walsh has been appointed as judicial managers of Hyflux. This means that the company’s current board, including founder-CEO Olivia Lum, will have to step down.
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The decision by High Court Justice Aedit Abdullah comes after a nearly four-hour long hearing on Monday (Nov 16).
The newly appointed judicial managers will have to be back in court for a case management conference in the week of Dec 14 with an interim report and schedule, the judge ordered, citing concerns about fees and the time needed.
Hyflux applied for a stay on the decision but was denied. CNA has contacted Hyflux on whether it intends to appeal against the judicial management order.
Lawyers representing other stakeholders, such as the medium-term noteholders (MTNs), DBS and the Securities Investors Association Singapore, voiced objections about the judicial managers appointed, citing the “appearance of conflict of interest” and need for a “neutral and independent party”.
Borrelli Walsh acts as an advisor to the bank creditors who filed for the application to have Hyflux placed on judicial management.
Justice Aedit noted these concerns and said these parties can file their applications for “additional or substitution” judicial managers and will be “heard another day”.
In making his decision for Hyflux to be placed judicial management, Justice Aedit said a court-supervised moratorium, which has been granted to the company for more than two years now, is “not intended to continue indefinitely”. It is only meant to “give temporary reprieve” for companies to work out viable rescue plans, but “this has not been the case here”.
While he recognised various complications such as a change in Hyflux’s legal team and the COVID-19 pandemic, Justice Aedit continued: “I’m not persuaded that sufficient grounds have been made for any further extensions and this must come to an end at some point.”
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LONG-RUNNING SAGA
More than two years have passed since Hyflux filed for a court-supervised financial restructuring in May 2018. The long-running debt restructuring of one of Singapore’s most iconic businesses has since been marked by several twists and turns, including U-turns on agreed deals, and remains closely watched by tens of thousands of distressed retail investors.
The decision by the High Court on Monday came despite Hyflux releasing details of a new rescue offer last Friday, on the cusp of the court hearing this week.
Its latest suitor – American fund manager Strategic Growth Investments (SGI) – has proposed to acquire and privatise the debt-ridden water treatment firm with a S$208 million cash purchase.
Under the proposal, which includes newly issued equity and convertible securities, SGI would pay S$155 million to some creditors, including S$41.3 million to perpetual securities and preference shareholders. In addition, it would place S$53 million in an account under Hyflux’s control for “contingent claimants” and provide S$60 million as working capital.
Hyflux, in a filing to the Singapore Exchange on Friday, said it supports SGI’s “comprehensive” proposal.
But this may now be up in the air as SGI has said it will not continue with the transaction if Hyflux enters into judicial management, given how that process will “likely result in a prolonged timeline”.
The company has other suitors, including Middle Eastern utility firm Utico with whom it signed a S$400 million deal in November last year. The deal has since lapsed.
Other potential investors that have come knocking include Aqua Munda, which offered in December last year to purchase debt of Hyflux noteholders and unsecured creditors; and Pison Investments, which said in July it would offer S$200 million for Hyflux’s debts via a “reverse Dutch auction”.
READ: From making waves to drowning in red ink – Hyflux, Tuaspring and how a business giant came undone
COURT HEARING
At the start of the hearing, Hyflux, represented by Clifford Chance Asia partner Nish Shetty, had sought for an adjournment of the judicial management application.
Pointing to the detailed term sheet from SGI, Mr Shetty said progress has been made in the company’s investor search. SGI’s rescue package also “appears to address all the key concerns” of various creditor groups by attempting to deal with long-standing concerns surrounding adviser fees and having a “significantly better recovery” rate, compared to a judicial management or liquidation scenario.
But this was rebuffed by Justice Aedit, who described the new development from SGI as “suspicious” given Hyflux’s tendency to provide updates just before court hearings.
While there was support from some creditors such as the MTN holders and DBS, the judge rejected the request and proceeded to hear the case for a judicial management.
Tan Kok Quan Partnership lawyer Eddee Ng, who represented the UWG, took issue with the lack of due diligence done on SGI’s offer, and the time needed for the deal to come through.
SGI has said its term sheet is valid for 60 days upon which a binding letter of intent will be issued and signed by all related parties. After which, SGI aims to close the deal within 60 days of the execution of the letter of intent.
Hyflux, in its bourse filings, said it agreed to conduct exclusive negotiations with SGI for the 60-day period.
Mr Ng warned that this exclusivity over an extended timeframe could curtail Hyflux’s options. There is also the risk of Hyflux running out of cash and if that happens, it would put “the company at the mercy” of SGI, he added.
Calling the term sheet from SGI “highly-conditional” with proof of funds only given until the signing of the final agreement, Mr Ng added that Hyflux’s willingness to accept such an offer “demonstrates there was never a deal” with earlier potential investors such as Utico or Pison.
Arguing that a judicial management would yield a “fairer and more transparent restructuring”, Mr Ng told the court that Hyflux has also been passing on “genuine” investors such as OUE and Keppel with “forced explanation”. Both companies were recommended to Hyflux by Borrelli Walsh.
“There’s an agenda in place by the company and they are naturally inclined to dealing with investors who only want to keep the board in place,” he said. “Therefore, an objective investor search cannot be carried out until a judicial management is put in place.”
Mr Shetty later explained that Hyflux had held discussions with OUE prior to the recommendation by Borrelli Walsh, and concluded that “they weren’t the right investor”. As for Keppel, it wanted 30 per cent of Hydrochem’s assets which was not in line with the broader restructuring that Hyflux has in mind.
Hyflux’s lawyer also premised his argument on the potential deal with SGI, although that was chastised by the judge who said the offer should not be described as “viable” since there was no cash on the table.
Mr Shetty also countered that the UWG and its judicial managers do not have a concrete plan, with details such as costs still “up in the air”.
Hyflux had the support of some creditors, including the MTN holders and DBS, who preferred a short extension of the debt moratorium. Together with SIAS, they cited concerns that SGI could walk away if Hyflux goes into judicial management.
Justice Aedit stressed repeatedly that with several extensions to its debt moratorium, Hyflux has had more than two years to put together a concrete restructuring deal. Yet, it has only mustered “prospective” plans with still “no money on the table”
“Two years into the restructuring, no cash. Nothing. How long is it going to take if I grant another moratorium?”
Taking all factors into consideration, Justice Aedit concluded: “What may have been sufficient for an extension in the past … may not be sufficient when numerous extensions have been given. It is against that context that I must weigh the application for JM (judicial management) order and I’m satisfied that the statutory objectives … have been made for the appointment of JM.”