Singapore Firm That Sold Bonds Via ATMs Got Default Letters
(Bloomberg) -- Hyflux Ltd., which started a court- supervised debt reorganization process last month, is meeting with bank lenders and advisers this week to discuss its restructuring.
The Singapore water treatment and power firm, which sold perpetual securities to the public in 2016, said it’s received letters notifying of default and acceleration of facilities from various counterparties, including financial lenders, according to an exchange statement on Monday. The filling didn’t specify which facilities were involved.
Hyflux’s financial problems have put a spotlight on its perpetual bonds, which are complex products with no maturity, that were sold to mom-and-pop investors through ATMs. The group’s change in fortunes has also added to signs of pressures faced by smaller borrowers in Singapore’s debt market. The company, founded by Olivia Lum, who was seen as a consummate entrepreneur in the city-state, has stumbled following expansion in recent years into the energy business.
“The risks associated with perpetual products are significant, including indefinite right of non-payment and a very junior position as a creditor in bankruptcy proceedings,” said Charles Macgregor, head of emerging markets at Lucror Analytics in Singapore. “It is unreasonable to expect a retail investor to have the ability to thoroughly understand the legal terms normally contained in a prospectus for a perpetual instrument.”
Hyflux has been engaging in preliminary discussions with financiers regarding the provision of funding to the company, according to the filing. “The group also has various obligations owed to financial lenders and trade creditors that have fallen due and will fall due from time to time,” the statement said.
The S$500 million ($374 million) of perpetual securities have been suspended from trading since May 23. They’ve slumped almost 31 cents this year and last traded at 49 cents on the Singapore dollar on May 22, according to Singapore Exchange prices.
Low interest rates have driven retail investors to look for investments offering higher interest rates and better safeguards are needed to better protect such investors, according to Mak Yuen Teen, co-director of the Corporate Governance and Financial Reporting Centre at the National University of Singapore Business School.
Prolonged Weakness
Prolonged weakness in the local gas market depressed electricity prices, putting a strain on Hyflux’s finances, the company said last month. Singapore’s electricity market has been progressively liberalized since 2001, leading to more competition. This took a toll on Hyflux, which last year posted its first annual loss since listing.
The company had also faced delays in the sale of its single largest asset -- Tuaspring, which combines Southeast Asia’s largest desalination plant with a gas turbine power plant.
The group applied to the Singapore court last month for a six-month moratorium against certain actions including court proceedings against it. A high-profile case like Hyflux would test Singapore’s new bankruptcy regime, which has introduced rescue financing.
“The option to receive financing during the process can provide companies the liquidity needed to restructure as a going concern,” said Paul Forgue, head of Asia restructuring practice at Alvarez & Marsal.
In Monday’s filing, Hyflux also said it has been taking steps to improve the group’s short-term liquidity constraints.
Sakeholders are being engaged to ensure that ongoing projects are completed as scheduled, so that payments are received, it said.
June 5, 2018, 04:18:57.685 GMT
By Denise Wee; Edited by Andrew Monahan and Beth Thomas