The Hyflux saga has ramped up with the promise of a public demonstration.

PUB, Singapore’s National Water Agency, announced on March 21 that it intended to take control of the water desalination plant at Hyflux's Tuaspring plant if it fails to cure the defaults by the end of the notice period.

This came after Hyflux did not fulfil its obligations to supply a certain amount of treated water to PUB under their Water Purchase Agreement (WPA).

Protest planned

Now a group of Hyflux retail investors are planning to protest at Hong Lim Park, according to Channel NewsAsia.

Scheduled for March 30, one of the protest's objectives is to express their opposition to PUB's statement.

The organiser of the protest, known only as Alex, said that it was a "ruthless" announcement that was "hard to swallow."

He added that many shareholders are hoping that PUB can compensate them out of "moral obligation" or "goodwill", as he believes that Tuaspring is still in operation and holds value.

No basis for compensation

When contacted by Mothership, the Ministry of the Environment and Water Resources (MEWR) said:

"All investments carry risks. Businesses can come under financial stress and are not immune to defaults. There is no basis for PUB to utilise taxpayer dollars to offset investor losses."

They explained how the tender to build the desalination plant was awarded to Hyflux as their proposal met PUB’s requirements for constructing and operating a desalination plant, and its bid was the most competitive.

Hyflux also proposed to integrate the desalination plant with a power plant. MEWR said:

"For Private-Public contracts, PUB does not interfere with the business decisions made by the concession company, but will monitor to ensure that the concession company is able, and has the means to continue, to meet the contractual obligations owed to the PUB."

Shareholder vote on April 5

The protest also hopes to drum up enough support for a shareholder "no" vote against Hyflux's proposed debt restructuring plan on April 5.

The investors and shareholders are depending on Indonesian consortium SM Investments, who proposed a deal to buy out Hyflux.

They would purchase 60 per cent of the company for S$400 million, along with a shareholder loan of S$130 million. A debt restructuring plan was formed based on this offer.

However, the plan would see the shareholders receive a relatively small amount of money.

And it is speculated that the PUB announcement would impact the proposed deal too.

White knight might ride away

According to OCBC credit research analysts interviewed by CNA, the takeover of the desalination plant might cause SM Investments to reconsider their deal.

The analysts said:

"If like us, SM Investments were also not aware of the severity of problems at Tuaspring prior to PUB’s latest announcements, then this increases the probability of them walking away (because) why invest S$530 million when there is no Tuaspring or why buy a lemon and take on the liabilities?”

Weighing possible scenarios, we think the likelihood for SM Investments walking away is still higher."

Ministry responds

However, MEWR stood by PUB's earlier statement that SM Investments should not use the announcement as a "basis" for withdrawal.

MEWR noted that if PUB terminates the WPA, it would help Hyflux’s case.

This would “alleviate pressure” on the rest of the Hyflux Group, and improve Hyflux’s value and the value of its shares.

They also noted that PUB was willing to waive the compensation it was owed by Hyflux under the WPA.

Safeguarding water security

MEWR elaborated that PUB's "sole objective" was to safeguard Singapore's water security, and its actions related to Hyflux was to meet this objective

MEWR added:

"Prior to the issuance of the default notice, Tuaspring Pte Ltd (TPL) had not been able to fulfil various contractual obligations under the WPA, in particular, by failing to keep the plant reliably operational as required.

Also, TPL had not been able to produce financial evidence to demonstrate its ability to keep the plant running for the next six months."

Said MEWR on TPL's financial position:

"PUB has provided sufficient time for TPL to resolve its operational and financial defaults. Given TPL’s current financial position, its inability to fulfil its contractual obligations is unlikely to change in the immediate to longer term."

PUB requires TPL to fully resolve all the defaults within the default notice period, if not PUB will terminate the WPA and purchase the desalination plant.

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Top image by Matthias Ang.