Important Sharing:
https://www.ocbc.com/assets/pdf/credit research/special reports/2018/ocbc asia credit - hyflux ltd special interest commentary (24 may).pdf
Dividends to CPS are subject to reduction or non-payment if HYF has insufficient Distributable Reserves (amounts available to the issuer for distribution as a dividend in compliance with Section 403 of the Companies Act). HYF faces a perpetual distribution in end-May 2018 amounting to SGD15.0mn and HYF has announced that it will not be paying out that distribution. HYF has shared that it will only make payments that are critical to the continued operations of the group’s business. However, we note that
HYF’s perpetual documentation contains a dividend pusher with a lookback period of six months and HYF had paid a dividend-in-specie in February 2018. Nonetheless, we believe that the non-payment of this May 2018 distribution does not constitute an event of default. In any case, this has now become a moot point given that HYF is protected from creditor demands due to the moratorium.
(If I interpret correctly, the last dividend for Hyflux Perpetual 2020 is withheld because of the moratorium, it is likely to be paid eventually.)
Good chance for Tuaspring to be sold eventually, key question is when and at what price: In our view, there is a good chance for Tuaspring to be sold as the water portion of the plant is highly strategic. Tuaspring’s water capacity is 2.3x that of SingSpring while the capacity on each of the three upcoming water plants is about the size of SingSpring. The key uncertainty is timing and pricing. Given the challenging market landscape, we are not optimistic that HYF would be able to sell Tuaspring as a whole (versus separating the water and power components) and at book value (we note from media reports that HYF was seeking to monetise Tuaspring at book value). As at 31 March 2018, the net book value of Tuaspring was SGD907.5mn (asset held for sale less liabilities held for sale). While the concession agreements are non-public, power is a liberalised sector in Singapore with no restrictions for foreign buyers. It is likely though on an asset-level, that there could be ownership restrictions (or regulatory approval required) for the sale of the water portion.
There are no foreign ownership restrictions on HYF at the company level.
The situation at HFY is fluid and highly dependent on how much sustainable debt HFY can afford to carry on its balance sheet post-restructuring. We assume that principal lenders are willing to come to the table and partake in a debt restructuring scenario given that HFY holds strategic assets and additionally have assets which are valuable only if the business continues to be in operations (eg:
HFY is sitting on SGD1.2bn of service concession receivables in addition to Tuaspring).
(Three points from above, electrical assets can be owned by foreigners:
1. The concession agreement is worth a lot of money. ($1.2bn + Tuaspring)
2. There is no restriction over the ownership of power assets but Tuaspring includes water assets that might have some restrictions.
3. Foreigners are keen to swallow Hyflux, as mentioned in earlier rumours, Change-of-Control is likely to take place.
