Singapore PUB takes over Tuaspring plant, Maybank shares down

Pic by Straits Times, Singapore

PETALING JAYA: Singapore’s Public Utilities Board (PUB) will take over the Tuaspring desalination plant from debt-laden water and power company Hyflux Ltd.

The country’s national water agency issued a notice to Tuaspring Pte Ltd, asking it to terminate its water purchase agreement with its parent company, Hyflux.

PUB said this was to safeguard Singapore’s water security and the termination notice provides a 30-day notice period, following which the takeover will ensue.

It was previously reported that PUB was willing to purchase the Tuaspring plant for zero dollars and waive any compensations that could be claimed from Hyflux.

According to Singapore Straits Times, the plant has experienced difficulties fulfilling its obligation under the water purchase agreement since 2017 and has recently failed to produce financial evidence that it is able to keep the plant running for the next six months.

Hyflux had entered into a restructuring agreement in October last year with SMI Investments Pte Ltd, a white knight consortium formed between the Salim Group and Medco Group, but the deal fell through. It made a filing with the Singapore Exchange that it has no confidence that SMI was prepared to continue to complete the proposed investment.

SMI had previously said it may have grounds to walk away because Hyflux withheld key information of its financial state, which significantly increased its working capital requirements.

SMI was expected to invest S$530mil for a 60% stake in Hyflux if the deal was successful.

The PUB announcement yesterday sent Malayan Banking Bhd’s (Maybank) shares going south by 2.28% to RM9, its lowest year-to-date and the first time the counter fell below RM9.19 since July 10 last year.

Maybank is a major financier of Hyflux’s Tuaspring and TuasOne, with a total exposure of RM1.95bil (S$658.6mil).

This is broken down into S$602.4mil for Tuaspring’s Integrated Water and Power Plant and S$56.2mil for TuasOne’s waste-to-energy plant, which will be ready by next month.

AffinHwang Research said in a research note on Tuesday that in a worst-case-scenario that the PUB took over the loss-making Tuaspring desalination plant, Hyflux’s account would have to be fully written-off from Maybank’s books.

“Based on the assumption of a net outstanding loan to Hyflux of RM1.63bil, this may work out to be 15.8% of our 2019 pre-tax profit forecast of RM10.3bil or a 43-basis-point reduction of CET-1 ratio (15% as at December 2018),” it said.

It added that Hyflux made a hefty S$916.5mil impairment in relation to the carrying value of Tuaspring’s assets and the impairment of receivables for previously completed projects, based on its third-quarter 2018 results announcement.

Maybank had set aside collective provisions totalling RM315.1mil as at second-quarter 2018.

The research house downgraded its rating on Maybank from “buy” to “hold” with a target price cut from RM11.50 to RM9.

Banking industry observers said the dip in Maybank’s share price might not be mainly due to the Tuaspring takeover, as it could also be due to Malaysia’s potential exclusion from the World Government Bond Index (WGBI).

While most banking counters closed lower yesterday, Maybank took the heaviest beating among other banking counters and came in sixth as the top loser on Bursa Malaysia.

Hong Leong Bank Bhd dropped 0.4% to RM20, Alliance Bank Malaysia Bhd down 0.5% to RM4 and AMMB Holdings Bhd down 0.45% to RM4.44.

Public Bank Bhd, CIMB Group Holdings Bhd and Affin Bank Bhd remained unchanged at RM22.60, RM5.05 and RM2.18, respectively.

RHB Bank Bhd was the only counter which closed higher, increasing 0.7% to RM5.79.