Commentary: Hyflux’s liquidation a sad day for corporate Singapore

Date: June 9, 2021

This is the full version of the abridged commentary first published in Business Times on 8 June 2021.

News over the past week that the judicial managers of water treatment firm Hyflux have applied for the company to be liquidated, if successful, brings an end to one of the most long-drawn out, controversial and unfortunate chapters in Singapore’s corporate history that extends more than three years back to May 2018 when the company first announced it was in trouble and applied for court protection to restructure its debts.

It was long drawn-out because many parties, SIAS included, took the view that Hyflux was worth saving as it was a quality home-grown name that operated in a strategically important sector.

This was a view shared by the Court when it exercised admirable patience in granting several debt moratorium extensions, often at the eleventh hour. After almost three years however, even the Court’s patience ran out – in Oct 2020, the Honourable Justice Aedit Abdullah granted one last extension but observed that “suspicion is building up considerably whether there is some sort of gamesmanship going on here’’.

It was controversial because hard questions have rightly been asked about Tuaspring, the billion-dollar power integrated water and power project that was the centrepiece of Hyflux’s, now controversial and ultimately ill-fated diversification into electricity production.

Was proper due diligence performed? Was an exhaustive risk assessment conducted? How many directors voted in favour or against the move? Were investors adequately informed of the risks?

Answers to these and many other similar questions may be forthcoming once an official probe into the company that was launched in June 2020 is completed.

Last but by no means least, it was an unfortunate episode because some 50,000 retail investors are affected and will probably lose their entire investment.

Included in this figure are 34,000 preference and perpetual (PnP) holders whose S$900m was used to partially pay for Tuaspring and whose interests SIAS placed at the forefront in all the convoluted debt restructuring negotiations that ensued over the past three years.

To add to the pain suffered by these investors is the fact that since May 2018, large sums have been paid to various advisors, who ostensibly had the ability and contacts to secure “white knights’’ that would save Hyflux while restructuring its debts, but who had all failed to deliver.

Many supposed saviours did emerge to lend hope to the PnP holders but despite plenty of promising posturing, none were able to table a viable and equitable restructuring plan. Was there really gamesmanship that went on?

SIAS’s involvement with Hyflux started with a 23 May 2018 press statement “Hyflux: Stakeholders need to be engaged’’ in which SIAS said it would do its best to ensure all stakeholders were kept informed of the company’s debt restructuring negotiations.

That involvement ended almost three years later with a Straits Times 11 Jan 2021 commentary “Hoping for a deal with some form of recovery for all parties’’ which said SIAS hoped that a white knight during the judicial management process could be found who would compensate not just senior debtholders but also those holding junior debt, namely the PnP holders.

In between, SIAS made 40 other public statements on Hyflux that had two overriding goals – to ensure all stakeholders were kept fully abreast of restructuring negotiations so they were not left to grope in the dark, and to secure a fair and equitable deal for all stakeholders, in particular PnP holders.

For example, in February 2019 after Hyflux had tabled a rescue proposal that relied on the involvement of white knight SMI, SIAS wrote to Hyflux saying it did not support the plan as it clearly favoured the senior unsecured creditors that included banks and noteholders who would “enjoy all the upside from the restructuring”, adding that this then had adverse implications for P&P investors.

The thrust of that letter was that small stakeholders, particularly P&P holders, should receive more. A short while later, Hyflux accepted SIAS’s suggestions.

SIAS also did not hesitate to call for a change of management when it saw fit – in its press statement of 25 April 2019 titled “About time Olivia Lum steps down and Hyflux needs to build trust’’ issued about eleven months after the start of the saga, it said “many do not believe that Olivia Lum and current management can rise to the occasion to meet the challenges ahead’’ and urged the company not to delay a change of management any longer.

When it was made known that corporate advisory firm nTan’s contract provided for a whopping S$25m “success fee’’, SIAS on 13 Jan 2020 sent a letter to Hyflux’s Board on behalf of PnP holders stating that the sum was inordinately large compared to the S$50m compensation that at the time was being offered to those investors while also asking the Board to explain nTan’s exact role and to justify the fee. That to the investors and creditors was not certainly “treating everyone fairly”.

When a new potential “white knight’’ emerged in the form of a company named Aqua Munda, SIAS on 30 December 2019 SIAS released a press statement, calling for more transparency from Aqua Munda on its plans for Hyflux.

Starting in July 2018, SIAS organised numerous townhall meetings between the company and stakeholders at which financial and legal advice was provided for the benefit of retail investors.

Hundreds of questions were posed at these meetings and all answers were published on SIAS’s website.

It therefore hugely disappointing that all these efforts have come to naught,  the company is to be wound up and PnP holders will not recoup anything. The only consolation, if it can be called that, is the experience SIAS has gained over the past three years should prove invaluable if similar situations were to arise in the future. More efforts and initiatives will be deployed by SIAS in future to prepare our investors to make the right choices and appreciate risks.

Going forward, if the official investigation by the Commercial Affairs Department (CAD) into the Board’s conduct yielded any actionable wrongdoing, SIAS would fully support the investors’ redress for compensation in our Courts.

This Hyflux saga is a lesson for directors who fail to observe their responsibility and they can be sure that they will be hauled to accountability.


David Gerald
Founder, President & CEO