Date: January 11, 2019
First published in Business Times on 11 January 2019
The annals of Singapore’s corporate history are filled with the names of companies that went bankrupt and had to be liquidated, much to the dismay of their shareholders and creditors. From Pan-Electric in the mid-1980s to the S-chips of the mid-2010s, many of these companies were badly tainted by scandals involving accounting irregularities, missing cash and other major governance lapses, in which case it might be argued that their exit – although painful for shareholders – has left the market better off as a whole.
The same, however, cannot be said of water treatment firm Hyflux Ltd, a homegrown success story and a pioneer in the field of water treatment. There is no accounting scandal shrouding the company, and no hint of impropriety behind its woes.
Instead, the reasons for its financial difficulties are by now well-known, stemming primarily from an ambitious and ill-timed expansion into power provision via its Tuaspring plant, a debt-laden move which now threatens its existence.
In view of the fact that Hyflux deals with such a strategically important asset as water, it is therefore Sias’s view that everything must be done to save the company. Stated differently, liquidation must be avoided at all costs.
Since Hyflux first revealed the extent of its problems in May last year when it applied for court protection, it has been granted time extensions to allow it to formulate a viable restructuring plan. The latest extension was announced last week and came courtesy of the Singapore Exchange (SGX), which has granted Hyflux more time to report its financials and to conduct its annual general meeting for fiscal 2018.
Hyflux now has until June 30, 2019 or before the lifting of its trading suspension to announce its results for the second and third quarters of fiscal 2018, while the same deadline will apply for reporting its full-year 2018 results, a four-month extension.
The company also received a four-month extension to conduct an annual general meeting for FY2018, which was originally supposed to be held by Apr 30, 2019, and a three-month extension to report its financials for the first quarter of fiscal 2019.
Clearly, the market’s regulators, in addition to the courts, appear to be of the view that Hyflux should be given every chance to survive.
Stakeholders must be reasonable in their demands – something is better than nothing.
The problem is that while all of the above will provide Hyflux with invaluable breathing space as it strives to put together a plan that will enable it to continue as a going concern, the efforts of SGX and the courts will all come to naught if stakeholders such as banks and other creditors place their own interests first, without regard for what it might take to save the company. Unlike most other companies under restructuring, Hyflux is somewhat unique as the majority of the affected investors are retail, “mom- and-pops”, amounting to about 50,000 small investors.
Sias, therefore, calls on all parties with an interest in Hyflux – whether as an unsecured or secured creditor, preference or ordinary shareholder – to set aside their own interests for the collective good. The reason for asking this is worth repeating – as a provider of a strategically important asset in the form of water for the country, Hyflux must be saved at all costs.
Admittedly, the rescue cannot be painless for stakeholders. As it was in the case of many companies in the past which ran into debt-related problems, all concerned will have to potentially suffer “haircuts” on their investments, the only question being how much.
For those that might consider a large-scale loss on their money as too unpalatable to consider, Sias would remind them that it is always better to receive something rather than nothing when the alternative is to wind up the company. It is therefore imperative that all creditors temper their expectations and be reasonable in their demands of how much they should receive.
Furthermore, that something that they could receive may well involve shares in whatever new entity which could emerge from the restructuring, which means that if the company’s debts are eventually taken off its books, a reborn and possibly debt-free Hyflux’s shares might be expected to perform well over time.
The key, therefore, is patience on the part of all stakeholders – the entry of Indonesia’s Salim Group with a S$530 million cash injection proposal should help reduce the pain, and stakeholders should bear in mind that no one would invest such a large sum of money without thinking that they have a good chance to turn around the company despite its current woes.
Founder Olivia Lum has been instrumental in propelling Hyflux to its position as a premier global water treatment player and her core competencies and experience are still vital to rejuvenate the company. However, given the current circumstances, it is perhaps timely for an independent chairman to be appointed to complement her proven technical track record as well as expand and strengthen Hyflux’s current board in managing the complexities and intricacies of its mega restructuring. Such a move would bring comfort to all stakeholders.
On Jan 18, Sias will convene a townhall for Hyflux to provide an update on the status of its restructuring plans. Investors would expect more details to be forthcoming then and we call upon all concerned to play their part in saving a company that is our national security asset.
- The writer is David Gerald, founder, president and CEO of the Securities Investors Association (Singapore)