Losses loom for Singapore banks as Hyflux struggles to stay liquid: Moody's

Half of the embattled firm’s debt comes in the form of unsecured bank loans.

Around 30 local Singapore banks and foreign subsidiaries run the risk of registering losses as water treatment firm Hyflux struggles to stay afloat after it applied for court protection to restructure its $1.12b (SG$1.5b) in outstanding debt, according to credit rating agency Moody’s.

Hyflux is starting a court-supervised liabilities reorganisation of liabilities and businesses, tapping on EY and WongPartnership LLP as its financial and legal advisors respectively, according to the company's letter to shareholders, as it tries to plug massive losses brought about by a weaker performance from its local and overseas markets.

The company’s net loss widened to $22.2m in Q1 from a restated 64,000 a year earlier as net debt ballooned to 165 times earnings before interest, taxes, depreciation and amortisation as of end-March, according to Bloomberg. It was also the second worst performing stock on the FTSE Strait Times All Share Index this year after crashing 39%.

“The company has a large amount of secured debt, which heightens the risk to its unsecured creditors,” said Moody’s. “These institutions, in addition to other investors, could suffer losses on their Hyflux exposures.”

The embattled firm’s loans and borrowings are bank-dominated, with 51% of its debt in unsecured bank loans and 17% in unsecured notes. Only 32% of its debt comes in the form of secured bank loans.

The Singapore branch of Maybank is likely one of the key secured creditors of Hyflux, according to the credit rating agency, after it agreed to provide 18-year $537.07m (SG$720m) financing package for the desalination and electricity generation plant Tuaspring, which the company is now desperately trying to divest to little success.

Tuaspring eventually became a loss-making asset due to depressed electricity prices in the city state which dragged revenue from electricity generation. However, the credit rating agency expects that Maybank may emerge largely unscathed from Hyflux’s liquidity crunch as its exposure in the Tuaspring project is secured or related cash-flow receivables or both.

“If the entire $537.07m (SG$720m) exposure is still with Maybank, and the exposure is classified as impaired, this will lead to a manageable 50 basis points increase in its impaired loans ratio, from 2.3% as of 31 December 2017. We believe Maybank’s exposure has decreased since 2013 because of loan amortisation,” said Moody’s.