SINGAPORE -- United Arab Emirates-based utility provider Utico FZC said on Tuesday that it had signed a deal worth S$400 million ($290 million) to acquire 88% of debt-ridden Singaporean water company Hyflux.
The deal paves the way for the once high-flying Singapore company to restructure its business. A Utico spokesperson told the Nikkei Asian Review that Hyflux founder Olivia Lum would remain as chief executive, adding that including perpetual securities and preference (PNP) share payouts, the deal was worth more than S$535 million.
The spokesperson said PNP shareholders would get "S$50 million minimum to S$150 million plus on the high side depending on the options they chose." It added that senior creditors stood to receive S$250 million, while advisers would get S$25 million. Hyflux would get S$100 million for business growth and working capital, the spokesperson said.
A source who saw proposals for the PNP payout plan told Nikkei that terms had been modified as the discussions progressed. The source said Hyflux was likely to seek consent from its retail investors to approve the terms of the payout. If investors rejected the plan and Hyflux went into liquidation, the investors stood to lose everything, the source said on condition of anonymity.
Some 34,000 'mom-and-pop' investors are owed S$900 million that they have collectively locked up in PNP. Associate Professor Mak Yuen Teen from the National University of Singapore Business School noted that these shareholders would not be compensated in full with the S$50 million minimum to S$150 million plus payouts: "PNP investors will get some money back but will have a large haircut. However, in a liquidation scenario, they will get nothing as the senior claims far exceed the liquidation value of Hyflux."
While Lum remains at the helm of Hyflux, Mak said her stake would be heavily diluted: "Since she holds 34.05% of Hyflux shares, she should end up holding 34.05% of the 12% not held by Utico after the latter's investment -- or about 4%. Hyflux will become a subsidiary of Utico."
Utico's spokesperson told Nikkei that, pending approval of the Hyflux board and court approval of the restructuring agreement, it would proceed to establish Utico Singapore, as well as meet with the Singapore Exchange and other regulatory bodies.
Utico said in a statement released earlier in the day that the restructuring agreement was signed and released on Monday. "The deal finds a resolution for creditors and PNP investors and development projects that have been languishing since the moratorium in May 2018," the statement said.
This month, Singapore's High Court granted Hyflux the latest in a series of extensions on its SG$2.8 billion ($2 billion) debt moratorium to Sept. 30. By that time, Hylux must agree with existing retail and institutional investors on a new debt restructuring plan to be laid out after the Utico deal is finalized.
Utico's statement said that with the support of Hyflux's board and management, "swift action will be taken to bring all projects up to speed as well as take on new projects for the company."
Ezien Hoo, credit research analyst at OCBC Bank, said the deal might be Hyflux's last chance to stay afloat: "Hyflux does not seem to have been well run, as such a new, credible shareholder and team could be positive for Hyflux. Particularly if Hyflux's existing creditors (e.g. bank lenders) are willing to stay as lenders post-Utico."
When contacted, a Hyflux spokesperson said the company would soon make an announcement via the Singapore Exchange. Trading of the company's shares has been halted since May 2018.
According to Utico's website, the company is the largest private utility provider in the UAE and offers services such as water purification and water recycling.
Founded in 1989, Hyflux's water treatment and desalination technologies are considered essential if Singapore is to achieve water self-sufficiency. The company has also expanded outside the city-state, including in the Middle East. But it has relied heavily on borrowing and made big losses after a foray into power generation in 2016.
Last October, Hyflux reached a rescue deal with a consortium led by Indonesian conglomerate Salim Group, but the arrangement collapsed in April. Hyflux then started negotiations with potential alternative sponsors, including Utico.
According to a Hyflux statement of comprehensive income filed earlier this month, the company's loss for June was SG$7.7 million, having widened from a SG$1.5 million loss for May.