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Hyflux rescue at risk as Singapore threatens to seize water plant

Indonesian savior hints it may cut $380m lifeline if city-state seizes facility

Hyflux's Tuaspring desalination plant is complicating the company's bid for survival. (Photo courtesy of PUB)

SINGAPORE -- The Indonesian conglomerate set to bail out Singaporean water treatment company Hyflux has hinted it may withdraw its support after Singapore's government threatened to take control of a key desalination facility.

At issue is Hyflux's flagship desalination plant, called Tuaspring, from which the government of the resource-poor city-state purchases water. Earlier this month, the Public Utilities Board, or PUB, said it would exercise its right to terminate the purchases and take over the plant if the company could not meet contractual obligations.

The government sees the plant as vital for water security. But the bailout consortium, led by Indonesia's Salim Group, views Tuaspring as a key asset.

On Monday, Hyflux said it had been put on notice by the consortium, which has offered a $380 million rescue package in exchange for a 60% stake in what was once a rising star on Singapore's business scene.

The bailout deal gives the consortium the right to call off the plan in the event of a "prescribed occurrence," allowing a two-week window of time to resolve the matter. Hyflux said that "on the basis that a prescribed occurrence has arisen, and is not remedied by the end of the two-week period (April 1), [the consortium] may assert a right to terminate the restructuring agreement."

Salim's notice comes at a critical moment for Hyflux, which is awaiting an April 5 creditor vote on a painful debt restructuring plan. The water company had applied for court protection last May to restructure its business and obligations, and following through is a prerequisite for the bailout.

Hyflux's financial documents show liabilities stood at about $2.7 billion Singapore dollars ($2 billion) as of the end of September.

Without Salim's help, the alternative is likely to be liquidation. If the consortium scraps the rescue or creditors reject the plan, Hyflux would have to find an alternative sponsor before the end of a debt moratorium granted by the court, which falls on April 30.

In its statement on Monday, Hyflux said it is "is in communication with PUB" as well as the consortium over the notices from each side.

Singapore meets its water needs with a mix of imports from Malaysia, purification and desalination. Imports account for about 50% of demand, while desalination could meet up to 30%, according to the PUB. Tuaspring is the biggest of three existing desalination plants, and another two plants will be ready by 2020.

Water security has become an even more pressing issue since last year, when Malaysian Prime Minister Mahathir Mohamad's government started pushing to charge more for the water shipments.

The PUB said on March 5 that it was "taking steps to ensure that our water security is safeguarded," stressing that the Hyflux unit operating Tuaspring has failed to "to keep the plant reliably operational as required" and "has not been able to produce financial evidence to demonstrate its ability to keep the plant running for the next six months."

Earlier, when asked by Nikkei for clarification, the PUB said was it was "unable to provide details of the defaults which are subject to confidentiality obligations." The agency could not be reached for comment on Tuesday.

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 the Middle East. But it relied heavily on borrowing for growth and the failure of a foray into power generation in 2016 hurt its finances.

Trading of Hyflux shares has been suspended since last May.

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