Background

Hyflux is in trouble. The water treatment and energy company lost nearly S$2 billion in value in less than 10 years.

It cited the "prolonged weakness" in the local energy market as one of the main reasons for its losses.

Tuaspring Plant

The Tuaspring Integrated Water and Power Plant was touted as a landmark project by Hyflux.

It cost over S$1 billion to build and was launched in 2011.

It was the first water plant in Asia that included a power generator, aimed at reducing desalination costs.

However, it struggled to make a profit and was even described as a "noose" around Hyflux's neck.

Default notice

Tuaspring Pte Ltd (TPL) had a Water Purchase Agreement (WPA) with the Public Utilities Board (PUB) to supply 70 million gallons of desalinated water per day for a  25-year-period.

However, it was unable to do so.

PUB issued a default notice to TPL on March 5 to remedy the defaults.

It added that upon the expiry of the default notice period, it will exercise its right to terminate the WPA and take control of the plant.

Water security

On March 20, TPL asked whether PUB wanted to buy the entire Tuaspring project, or just the desalination plant.

According to PUB in a media release on March 21, TPL revealed that both the desalination and power plants were losing money.

PUB declared that it has the operational capabilities, experience and manpower to run the desalination plant.

If TPL can't fully resolve the defaults within the notice period, PUB will terminate the agreement and buy the desalination plant, for the good of Singapore's water security.

PUB said that the value of the desalination plant is actually in the negative figures. Under the WPA, TPL is entitled to a compensation fee from PUB.

But PUB offered to waive the fee, saying: "This is because PUB is unlikely to recover the compensation sum from TPL, given TPL’s current financial position."

Might mess with restructuring plan

However, this development might mess up plans for the restructuring of Hyflux itself.

According to Channel NewsAsia, Hyflux previously announced that Indonesian consortium SM Investments had agreed to purchase 60 per cent of the company for S$400 million, along with a shareholder loan of S$130 million.

This involved a restructuring plan that could lead to small investors getting a small sum of money for their shares, making them unhappy.

Also, Hyflux said on March 18 that if PUB terminated the WPA with Tuaspring, this would allow the investor to terminate the Restructuring Agreement if they wanted to.

PUB says it will help restructuring

PUB is aware of this possibility, but said that terminating the WPA would actually help Hyflux's case.

It said that it would "alleviate pressure" on the rest of the Hyflux Group, improves Hyflux’s value, and the value of its shares.

It added that SM Investments should not use PUB's actions as a "basis" for terminating the Restructuring Agreement.

What happens to the retail investors?

According to The Straits Times, analysts said that PUB's announcement should end their hopes of holding out for a "better deal".

There isn't a better deal on the horizon, because PUB won't be paying anything to acquire the desalination plant.

So, SM Investments' offer might appear more attractive to the retail investors.

They might be more inclined to vote for the restructuring plan on April 5.

What happens to SM Investments' deal?

But this assumes that SM Investments still wants to buy Hyflux, now that the desalination plant will be out of reach.

After all, the plant was an important part of Tuaspring.

The consortium might walk away because Hyflux will have lost a major asset.

But given that it is a "toxic", unprofitable asset with negative value, SM Investments might be glad that PUB wants to take it over.

This saga is not over yet.

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Top image via screen shot from Hyflux Group's YouTube channel.