Hyflux disputes white knight's claims of recourse to pull out from deal

If Salim-Medco "wrongfully terminates" the agreement, Hyflux said it would lay claim to S$38.9 million deposit placed in escrow

Singapore

TROUBLED water treatment company Hyflux has disputed Salim-Medco's assertion that actions by the Public Utilities Board (PUB) and buyers of water from its Magtaa desalination plant in Algeria - known as offtakers - constitute events that will allow the Indonesian group to pull out from its proposed S$530 million investment.

In a bourse filing on Tuesday night addressing Sias questions about whether the investor has signalled it will back away from its offer, Hyflux disclosed that "certain disagreements have recently emerged" between the company and SM Investments, the investment vehicle of its Indonesian white knight.

SM Investments had made its assertion through two investor notices to Hyflux.

The first, dated March 18, concerns PUB, which said last week that if Hyflux subsidiary Tuaspring is unable to cure its defaults by April 5, PUB will take control of Tuaspring's desalination plant. Hyflux in its latest filing said that as PUB had yet to terminate its water purchase agreement, any statements by the agency are not considered threats to cease Hyflux or Tuaspring's business.

While Hyflux agrees that a termination by PUB would constitute a prescribed occurrence under its deal with Salim-Medco, it says that in the event of such a termination in line with certain deadlines, Salim-Medco would already have completed its investment deal. The earliest date for PUB to terminate its agreement with Hyflux would be April 6. Along with 30 days notice from PUB, the agreement would only be terminated on May 6, which is past the April 30 long-stop date (completion of the investment deal) fixed by the Salim-Medco consortium.

"The company has been advised that Salim-Medco cannot rely on the PUB's termination of the WPA to lawfully and effectively terminate the restructuring agreement prior to the long-stop date," Hyflux said.

Hyflux is also disputing another prescribed occurrence in the second notice dated March 25 from Salim-Medco, which asserted that the occurrence had taken place based on a notice from Magtaa offtakers Sonatrach SpA and L'Algerienne des Eaux alleging certain defaults under the concession agreement for the Magtaa desalination plant in Algeria. They had threatened to terminate the deal. Hyflux said active steps to resolve the matters in the notice were being taken, and the offtakers had not terminated the concession agreement for the Magtaa plant despite the notice having expired on Feb 8.

Hyflux also rebutted Salim-Medco's claims that it had not agreed to the commercial terms of its restructuring plan, particularly the aggregate cash amount of S$272 million for distribution to relevant creditors, with S$271 million to be derived from the intended investment. It said an agreement with Salim-MedCo on said commercial terms were reached prior to the publication of the restructuring proposal on Feb 16.

Responding to Salim-Medco's statement that it is not agreeable to vary its restructuring agreement, whether or not to accommodate a termination of the Tuaspring water purchase agreement or otherwise, Hyflux said the schemes scrutinised at the High Court hearing on Feb 21 were premised on the same commercial terms, and amendments to other schemes also do not vary the commercial terms.

Hyflux added while it "has been unable to meaningfully engage" with Salim-Medco, the restructuring agreement "remains in force and the investor has not stated that it will resile from its proposed investment."

Nonetheless, if Salim-Medco "wrongfully terminates" the agreement, Hyflux said it would be able to lay claim to the S$38.9 million deposit taken out of Salim-Medco's proposed investment that had been placed in escrow shortly after the agreement's execution.

Hyflux will proceed as scheduled with the scheme meetings on April 5 and April 8, and the holding of an extraordinary general meeting on April 15. However, it has cancelled its third town hall meeting in the light of said scheme meetings and scheduling difficulties with Salim-Medco.

Lawyers for SMI did not immediately respond to queries by BT on whether SMI intends to back out of the investment agreement altogether, or if it is open to renegotiating an investment with Hyflux.