Hyflux backs Strategic Growth Investments' rescue deal
But SGI said it will not continue with the transaction if Hyflux enters into judicial management (JM), because a JM process will likely result in a prolonged timeline.
Three days before the Hyflux judicial management order application is due to be heard in Court, the water treatment firm on Friday evening shared in-depth details of Strategic Growth Investments' (SGI) term sheet, and backed its proposal, calling it "comprehensive" and saying it "appears to address the key concerns raised by the various stakeholders".
A detailed term sheet from SGI, the fourth white knight in a long-running saga, was filed to the Singapore Exchange on Friday. It showed SGI's proposal to acquire and privatise Hyflux, including all its subsidiaries, as well as its ownership interests in plants and other businesses.
The deal will be structured as a S$208 million cash purchase of newly issued Class A common equity and convertible securities which can be converted to Class B common equity upon meeting of performance hurdles. Class B common equity is non-voting and on a fully diluted, fully converted basis, will not make up more than 16 per cent of the total common equity.
On issuance of the Class A shares and convertible shares, about S$155 million will be paid to the creditors, about S$53 million will be placed in an account under Hyflux control for the benefit of contingent claimants, and S$60 million will be injected into the company as working capital.
Of the S$208 million, perpetual capital securities and preference share holders will get S$41.3 million; MTN holders will get S$26.2 million; banks and facilities will get S$56.8 million; other creditors will get S$14.8 million; contingent claimants will get S$53 million; while trade creditors will get S$15.8 million.
Hyflux has agreed to conducting exclusive negotiations with SGI for a period of 60 days from Nov 10, 2020, during which it will not negotiate with new investors other than those it was already in talks with. SGI said it will make a "good faith effort" to consummate the transaction as soon as commercially possible, although the Covid-19 pandemic may likely cause unexpected delays.
If the deal happens, SGI will look to "augment" the executive leadership and replace the entire board. Hyflux's executive chairman Olivia Lum will transition to a non-executive chairperson of the advisory board, while a new CEO will oversee the restructuring plan.
In his letter, Michael Hong, chief investment officer of SGI, said: "We have observed that previous letters of intent (LOI) by other Hyflux suitors more closely resembled expressions of interest that lacked specifics. In our opinion, those previous letters did not indicate serious intent and are fundamentally different from our LOI."
But SGI said it will not continue with the transaction should Hyflux enter into judicial management (JM), as a JM process will likely result in a prolonged timeline, and it is unwilling to spend more time and resources, incurring additional advisory fees in a protracted transaction process.
Moreover, a JM process will also likely result in increased hostilities among stakeholders, leading to bad publicity and other complications, it said. There will also be uncertainty regarding the continuity of existing management, whereas its plan requires the continuity of key management, especially for business development purposes, and to work hand-in-hand with the new CEO that SGI will be bringing in.
Hyflux threw its weight behind the deal, saying: "In particular, it offers single-payment cash recovery upon completion of the transaction and participation in the company's future growth.
"The company supports the restructuring proposal that is set out in the SGI term sheet and will use its best endeavours to work with SGI as the preferred investor to facilitate the adoption and implementation of the proposal by the various stakeholders on a timely basis."
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