Singapore's national water agency said it might take control of a water treatment plant owned by Hyflux as the company had been unable to fulfill its contractual obligations.
Hyflux is in the middle of a court-supervised reorganization which began last year as the company tried to restructure its debt. Indonesia's Salim Group and Medco Group had agreed to acquire 60 percent of the company for S$400 million ($295 million), a move that gives it a lifeline.
Water agency PUB said it had issued a default notice to Tuaspring Pte Ltd, a Hyflux subsidiary, to remedy defaults under their water purchase agreement.
"PUB is taking steps to ensure that our water security is safeguarded," it said in a statement late Tuesday.
Tuaspring is the largest desalination plant out of three in Singapore and an important water source for the city-state. It is also a key asset for Hyflux.
Under a 2011 agreement, Hyflux was to deliver up to 70 million gallons (265 million liters) of desalinated water a day to PUB from 2013 to 2038.
PUB said it would terminate the water purchase agreement (WPA) and take control of the plant if the defaults were not fixed within the notice period.
Hyflux said in its statement late on Tuesday that a termination of the WPA may entitle its investor to assert a right to end the restructuring agreement.
Hyflux said it had at least until April 5 to consult with PUB on remedying the alleged defaults. After this, PUB could terminate the WPA by giving written notice of not less than 30 days to Tuaspring.
PUB said Tuaspring failed to keep the plant reliably operational and had not been able to produce financial evidence to demonstrate its ability to keep the plant running for the next six months.
Hyflux took a S$916 million impairment charge for the nine months ended Sept. 30, 2018, relating to a loss while adjusting the carrying value of Tuaspring plant, and other write-downs.
According to a Hyflux affidavit last year, Tuaspring, which is secured to Malayan Banking Bhd (Maybank), had a book value of S$1.3 billion and can meet up to 17.5 percent of Singapore's present water demand.