EY have indicated that in a liquidation, unsecured creditors are estimated to receive 3.8% to 8.7% recovery and SGD900 million perpetual and preference shareholders received zero return. Can EY state the assumptions used to justify its calculation of the liquidation value?
The liquidation analysis details a range of estimated realisations from a theoretical liquidation scenario of Hyflux Ltd. Hyflux Ltd is a holding company with the group’s projects and assets contained within subsidiaries or associate companies. In a liquidation, recoveries for creditors of Hyflux are dependent upon value being recovered from these subsidiaries / associates (including outside of Singapore in a number of cases), which need to settle their own liabilities first before any remaining value (“equity value”) can be passed up to the Hyflux holding company level for its creditors. Some key overarching assumptions underpinning EY’s theoretical liquidation analysis are as follows: i. Upon commencement of a liquidation of Hyflux Ltd, many of the other Hyflux Group entities (including Hydrochem and the EPC business generally) are assumed to enter liquidation on or around the same time; ii. Construction activity on projects such as, but not limited to, TuasOne and Qurayyat, would immediately cease; iii. Most of the Hyflux Group’s employees would have their contracts of employment immediately terminated, although EY assumes a small base of skeleton staff would be retained by the liquidator to assist with the realization of assets; iv. In order to maximize returns for creditors, EY have assumed that certain asset owning entities / investments which do not require financial support from Hyflux Ltd, do not enter liquidation and are instead realized through the sale of shares via an orderly sale process. v. Tuaspring – assumed sale process in a liquidation scenario is not likely to yield any excess net sale proceeds over the secured bank debt. vi. Magtaa and Tlemcenn - unlikely to be any value in the shares taking into consideration inter alia, bank security, shareholder agreements and offtaker obligations. vii. Realisation values mainly attributed to China assets (including Tianjin Dagang, Tus Water), PT Oasis (which has since been sold), SingSpring Trust, and Hyflux Shop. viii. Crystallisation of all contingent liabilities which include performance bonds and corporate guarantees was assumed, amounting to approximately SGD1.9b of senior unsecured liabilities and SGD900m of subordinated unsecured obligations. Given the senior unsecured creditors would potentially obtain a return over a number of years, of between 3.8% to 8.7% in a liquidation, the subordinated unsecured creditors (i.e preference shares and perpetual securities holders) would not get any return. Although a liquidation analysis is based on assumptions, given the large gap between what is estimated to be received in a liquidation and the total senior unsecured liabilities (which need to be settled in full prior to any returns to subordinated unsecured creditors), this would render the likelihood of subordinated unsecured creditors obtaining a return being extremely remote. An EY report on the liquidation analysis will be attached to the Scheme document/ Explanatory Statement and circular to shareholders.
- Last night's bloomberg leak was likely quite accurate. Almost nothing for retail investors.
