Singapore May Pay $0 for Water Plant That Cost Investors Millions

Singapore's government may pay nothing to take over a water desalination plant from cash-strapped Hyflux Ltd. while waiving a compensation fee, complicating the outlook for the firm's restructuring plan.

The Tuaspring project consists of a water-treatment plant and a combined-cycle power plant that were built by Hyflux at a cost of S$1.1 billion ($815.4m) after winning a 25-year concession in 2011. The plant was billed as one of the four "national taps" to bolster the state's water security. The Public Utilities Board served a notice of default on Tuaspring on March 5 , citing operational and financial lapses.

The PUB will terminate the concession and purchase only the water plant if Tuaspring is unable to resolve all defaults within the notice period, it said in a statement late Thursday. It said it's willing to purchase the water plant for "zero dollars and waive the compensation sum." "It was meant to be a jewel asset, now it's cancerous operationally," said Ang Chung Yuh, a senior fixed-income analyst at iFast Corp. in Singapore. While Hyflux may be cutting off a money-losing plant, "a takeover by PUB would change a lot of the restructuring equations." Read more about that here Hyflux is holding a creditors' meeting on April 5 to vote on a plan to reorganize about S$2.8 billion of claims, after turning to court protection in May 2018. That involves a S$530 million cash injection plan from SM Investments Pte, keeping Tuaspring intact and asking unsecured creditors to take 75 to 90 percent of haircuts.

Hyflux has until April 5 to get out of default, according to its filing. A separate notice from SM Investments, a consortium of Indonesian businessmen, requires Hyflux to remedy the PUB default by April 1.

Losing the water-supply concession for any cause may entitle SM Investments to abandon the rescue plan proposed in October 2018, according to an exchange filing Thursday. Hyflux has reached out to the investors, even though they aren't obliged to alter the restructuring agreement.

The company has said that if PUB terminates a water-purchase agreement with it, that would be "favorable" because it alleviates pressure on the rest of the corporate group and would benefit its value, according to PUB. The board's actions shouldn't be used as a basis for SM Investments' decision to withdraw from the restructuring plan, PUB said.

Hyflux has been in default on its water-supply concession since 2017, according to the PUB default notice. The company has attempted to sell Tuaspring in recent years, and a lone offer from an unnamed bidder was insufficient to pay in full the secured bank debt owed to Malayan Banking Bhd.

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