The tangled affairs of beleaguered water treatment firm Hyflux have become even more fraught with conflicts flaring with the white knight investor that holds the company’s survival in its hands.

The disagreements came to light late on Tuesday night in a Hyflux filing to the Singapore Exchange (SGX).

This filing was intended to answer questions posed by the investor watchdog on Monday and to assuage growing concerns by investors that the $530 million rescue deal will proceed.

But the answers reveal that the deal between Hyflux and its seemingly reluctant white knight is on shaky ground.

Hyflux said “certain disagreements have recently emerged” with the white knight – Indonesian consortium SM Investments – with which it “has been unable to meaningfully engage”. Hyflux also disputed some assertions SM Investments had made.

A key fracture point concerns the cash sum of $271 million outlined in the rescue deal to settle claims with Hyflux creditors. Another $1 million will be provided by Hyflux’s own funds for this purpose.

SM Investments had noted on three occasions that it fears the sum used to pay off creditors will not leave enough capital for day-to-day operations. It also said it had not agreed to this aspect of the plan.

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Hyflux said “certain disagreements have recently emerged” with… Indonesian consortium SM Investments – with which it “has been unable to meaningfully engage”…

A key fracture point concerns the cash sum of $271 million outlined in the rescue deal to settle claims with Hyflux creditors. Another $1 million will be provided by Hyflux’s own funds for this purpose.

Hyflux refuted this in its Tuesday filing: “The company’s position is that an agreement with (SM Investments) on the commercial terms of the overall cash and equity allocation were reached prior to the publication of the restructuring proposal on Feb 16.”

And it repeated this point in four letters sent to the consortium from March 10 to 25.

This $271 million sum was “the thrust of SM Investments’ disagreement”, Hyflux said in response to queries from The Straits Times.

SM Investments suggested that recent developments surrounding the Tuaspring power and water plants could give it grounds for walking away.

This was spurred by national water agency PUB’s announcement that it will take over the Tuaspring Desalination Plant if Hyflux subsidiary Tuaspring Private Limited cannot rectify defaults by April 5.

That would also mean terminating a water purchase agreement that has underpinned the plant’s commercial operations.

SM Investments said such an outcome could prompt it to end the rescue deal. Hyflux disagreed, noting that PUB had yet to terminate the water purchase agreement it has with the plant.

It added that as any statements by PUB cannot be seen as threats by Hyflux or Tuaspring to stop the business operating, SM Investments could not use it as grounds to terminate the deal.

Another point of contention involves several disagreements over a desalination plant in Algeria, whose water buyers have indicated their right to scrap a purchase agreement due to defaults at the facility.

SM Investments said this was also grounds to terminate its deal and gave Hyflux until April 8 to fix these defaults.

Hyflux said it had been taking active steps to “amicably resolve” the matters and the buyers are yet to terminate the purchase agreement.

Despite the sticky situation for all parties, Hyflux said that, for now, SM Investments is still at the table due to the fact that it has not stated any intention to resile from its proposed investment.

“SM Investments has written to Hyflux, asserting that it will continue to comply with its obligations under the restructuring agreement and expects Hyflux to do the same,” the company told The Straits Times. “Hyflux will hold SM Investments to its word.”

Offers by Hyflux to vary the agreement to keep the white knight from leaving have also failed as SM Investments stated that it will not agree to any change.

If SM Investments “wrongfully terminates” the agreement, Hyflux would be able to lay claim to the $38.9 million deposit that was taken out of the proposed investment, it said in the filing.

But this is a fraction of the original deal. Unless another white knight appears, termination would likely lead to liquidation.

More than $1.9 billion needs to be recovered in liquidation to pay the senior unsecured creditors before the excess – if there is any – goes to the smaller investors, said Hyflux.

The chances are that these holders of perpetual securities and preference shares will get nothing, it added.

“There is no alternative to the deal now. The proposal presents the best viable alternative to liquidation on the table,” said Hyflux.

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