Singapore's Hyflux seeks court protection for debt

SINGAPORE — Hyflux, the Singapore water treatment firm, has suspended trading of its shares and related securities and started a court-supervised reorganisation process, the company said in a statement late Tuesday (May 22).

The move will provide the company with room to focus on ongoing discussions with strategic investors, while seeking to optimise operations and maintain cash flows, Hyflux said in the statement. Ernst & Young Solutions LLP has been appointed as a financial adviser and WongPartnership LLP as a legal adviser.

Hyflux last year posted its first annual loss since listing, and the company has said its energy business could suffer as an oversupply of gas depresses electricity prices. The turnabout in fortunes for Hyflux, 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.

"A debt workout of some sort was inevitable," Ezien Hoo, a Singapore-based credit analyst at Oversea-Chinese Banking Corp., said on Tuesday before the Hyflux announcement. "They were facing short-term debt, as well as the need to maintain cash to meet their bond covenants."

Hyflux 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 recapitalise its balance sheet, according to OCBC's Ms Hoo.

DEBT SURGES

Hyflux, which was worth nearly S$2.1 billion (US$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 per cent decline, trailing only Noble Group Ltd.

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 amortisation as of March 31, from about 32 times at the end of last year, according to data compiled by Bloomberg. The company faces a coupon payment due May 28 on its S$500 million of 6 per cent perpetual securities. Its S$100 million of 4.25 per cent bonds mature 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.

LAW CHANGE

The company, which became Hyflux, won municipal contracts in Singapore and expanded into new markets like Malaysia, China and India. Ms Lum was named to government bodies, including International Enterprise Singapore, including a stint as a Nominated Member of Parliament.

Singapore updated its corporate insolvency framework last year following nearly $1 billion of defaults in the Singapore bond market since November 2015, Law Minister K Shanmugam said in an August speech. The changes, which incorporate elements of the United States Chapter 11 system, were passed by parliament in March 2017.

One of the amendments effectively protects companies seeking an arrangement with their lenders, allowing a court to block creditors from filing winding-up petitions or seizing pledged assets while negotiations take place. BLOOMBERG