SINGAPORE - Former white knight SM Investments (SMI) will be suing debt-laden Hyflux for cancelling the $530 million rescue deal SMI had offered, it said on Friday (April 19).

The move means both Hyflux and SMI will be making a grab for the $38.9 million deposit that was placed in escrow by SMI for the restructuring agreement.

In its statement, SMI said it had not accepted the water treatment group's "purported termination" of the investment deal on April 4, adding that SMI only ended the deal on Friday (April 19) in accordance with the terms of the agreement.

The decision to terminate was based on several "termination events", the investor group said.

It said that Hyflux had wrongfully tried to walk away from the rescue deal through its actions on April 4. "This was a repudiatory breach of the agreement by Hyflux entitling SMI to terminate the restructuring agreement," said SMI.

Hyflux had also failed to meet the April 16 deadline to satisfy various conditions, which included obtaining a sanctioned scheme of arrangement to settle the amount owed to creditors. SMI said this failure meant that the agreement would automatically cease to operate.

The arrangements were supposed to be put to a vote by Hyflux's stakeholders in two days of scheme meetings, but Hyflux called off the vote before they could take place on April 5 and 8.

SMI said that issues at Hyflux's three projects - Tuaspring, Singspring and its Algerian desalination plant Magtaa - have not been remedied.

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On Wednesday, national water agency PUB issued a notice to Tuaspring Pte Ltd saying that it would take back the desalination plant at zero dollars after 30 days.

"Each of the termination events entitles SMI to a refund of its deposit in accordance with the restructuring agreement," said SMI, adding that it rejects Hyflux's accusations on Monday that SMI had reneged on the deal.

Hyflux said previously it had pulled out of the agreement because of SMI’s “repeated refusal to commit to making the investment necessary for the restructuring”, and fired the first salvo by suing SMI first.

Even if Hyflux is awarded the $38.9 million deposit, it is a drop in the ocean considering its $2.95 billion debt as of March 31 last year..

Hyflux said it could not comment on SMI’s latest statement as the allegations are part of its suit against the investor group.

Singapore Management University associate professor of law Eugene Tan said it is difficult to tell which side has a stronger case as both have lobbed many accusations at each other.

Associate Professor Kevin Koh, who specialises in financial regulation and enforcement at Nanyang Business School, said these legal actions could also be “an additional distraction for any potential white knight as it is uncertain how long the lawsuits will play out.”

On Friday, Hyflux also disclosed in an early morning filing to the Singapore bourse that a collaboration agreement with Maybank, Tuaspring Pte Ltd’s only secured creditor, had been terminated.

The agreement had allowed Maybank to take part in the divestment process with any white knight investor of Tuaspring, in exchange for not starting any enforcement action against the Hyflux subsidiary.

A Maybank spokesman told The Straits Times that two events – PUB’s notice of takeover as well as a missed March 31 deadline for Hyflux to carry out a rescue deal – had prompted it to end the collaboration agreement.

In a letter from Maybank’s solicitors, the bank had also stated their intention to appoint receivers and managers over the Tuaspring assets, apart from the desalination plant.

Many investors believe the power plant portion of Tuaspring holds value given that it is still operational, but the move could end retail investors’ hopes of recovering some of their investments through the power plant.

Maybank has the first right to recovery if Tuaspring is liquidated before other unsecured creditors and retail investors. It is unlikely that there will be any excess proceeds from a distressed sale of Tuaspring to repay anyone other than Maybank, noted Dr Koh.

Time is running out for the troubled group as the court-sanctioned debt moratorium that protects Hyflux from its creditors expires on April 30.