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Time for Hyflux's PnP holders to move on as firm enters judicial management

Time for Hyflux's PnP holders to move on as firm enters judicial management

Source: Business Times
Article Date: 18 Nov 2020
Author: Lee Meixian

Judicial Management does not preclude the judicial manager from working with a strategic investor nor does it mean that shareholders will certainly receive nothing.

From the get-go, the restructuring of Hyflux had placed especial attention on the 34,000 perpetual and preference share (PnP) holders.

Every effort was made by the Securities Investors Association (Singapore) (Sias) to stave off a judicial management (JM) or liquidation scenario, in hopes of a rescue deal.

The PnP holders might have been worried for the fate of Hyflux's existing projects and offtake agreements, in the event of a JM or liquidation. And they might have assumed that they would get nothing if a strategic investor was not allowed to swoop in and swallow the company whole.

The court's decision to put the debt-laden water treatment firm under JM on Monday would, therefore, be unwelcome.

Sias's president and CEO David Gerald on Tuesday told The Business Times that it objected to the JM, especially since there has been an offer made by a new party: Strategic Growth Investments (SGI).

"Since Hyflux has said that they will appeal by this Friday, we will await the final decision of the appeal court when it is fixed, before commenting further," he said.

Rescue still possible

In fact, the situation is not as bad as some PnP holders think.

JM is a rescue procedure to restructure a distressed company's debt. No part of this process precludes the judicial manager from working with a strategic investor. Neither does it mean shareholders will certainly receive nothing.

Hyflux's listing status alone could be valuable, said Justin Yip, partner at Withers KhattarWong.

Certainly, PnP holders rank low on the distribution of receipts from the JM process. But there is also no certainty that they would have recovered anything if Hyflux had continued to seek a rescuer.

At Monday's hearing, lawyer Eddee Ng, who represents a group of Hyflux's creditor banks, noted that Hyflux has so far favoured investors who agreed to keep the existing board in place.

Some of these same board members are now being probed by the authorities.

With a third-party judicial manager in place, an objective investor search can begin.

Aurelio Gurrea-Martinez, assistant law professor and head of the Singapore Global Restructuring Initiative at Singapore Management University, said a JM could even bring new rescue deals to the table in the form of going concern sales. These sometimes do not take place because of certain competing interests.

Protecting interests of all

The JM process will, therefore, be fairer to all parties. It will also facilitate investigations of transactions and directors' actions, which will support the confidence of any potential investor.

If, on the other hand, the JM process does not turn up any investors or buyers, investors should not blame the process. More likely, the business was not economically viable.

Said Prof Gurrea-Martinez: "The role of insolvency law is not saving non-viable businesses but making sure that the assets of these businesses are reallocated towards more productive activities that can generate jobs, wealth and growth."

PnP holders, too, should consider this need to allocate resources efficiently - whether those resources are their own or those of others. Other investment opportunities await, and they may be better off seeking them out instead.

Source: Business Times © Singapore Press Holdings Ltd. Permission required for reproduction.

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